Advantages & Disadvantages Of A Foreclosure Property

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The Federal Savings Bank shares news of the current foreclosure environment and whether a foreclosure is a good investment choice.

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A cheaper home also means first-time home buyers can get a better mortgage.

The Federal Savings Bank knows that delving into the housing market can be intimidating for first-time home buyers. Right now the numbers of foreclosed homes available are still high in number. To find the best homes for their budgets and build as much bargaining leverage as possible, first-time home buyers need to go into the venture informed. This means first-time home buyers should be pre-approved for a mortgage and know whether purchasing a foreclosure is a possibility for them. If it is an option, they also need to know the pros and cons of buying a foreclosed home:

According to a recent blog post by, a leading provider of real estate analytics, titled β€œNational Foreclosure Inventory Down 34 Percent Nationally From September 2013” 607,000 homes were recorded in foreclosure status in September 2014. While these homes are not necessarily listed for sale, many are, and the judicial process in those states is pushing to get the owners out and the home sold.

In fact, if searching for a property in a warmer part of America, a foreclosure is probably the way to go. Corelogic's latest National Foreclosure Report advertises that β€œthe top 5 states account for almost half of all completed foreclosures.” These states are Georgia, Michigan, California, Texas, and Florida (which makes up by far the majority of foreclosures).

The benefits of foreclosures
When looking for homes, buyers want to have the largest selection possible to choose from. Including foreclosed homes in the search allows people to see a broader range of options, and more choices mean buyers are more likely to get everything they want.

Foreclosures are also traditionally cheaper, though high-end homes won't see as much of discount as small or fixer-upper options. For first-time home buyers on strict budgets or with a small amount saved for a down payment, a discount on the asking price can be essential.

A cheaper home also means first-time home buyers can get a better mortgage. They borrow less money and possibly receive a better interest rate if the lower amount means they're less of a risk to the lender.

The disadvantages of foreclosures
Foreclosed homes often present a financially sound option for first-time home buyers but can come with their own baggage. Occasionally, when homeowners are still living in the house but know it's being foreclosed on, they'll damage the property. Horror stories have been told about previous homeowners ripping out plumbing, damaging walls and leaving behind a general mess. However, this is not the norm, and home buyers can avoid this issue by not agreeing to purchase a home before it's been thoroughly inspected.

Foreclosed homes are generally sold as-is, meaning home buyers will need to make all repairs themselves and have money for this put away. These homes often don't have the same amount of written disclosures as traditional properties, which means even with an inspection, it's possible for there to be surprises, such as leaks or inefficient appliances. Though, surprises can occur in any homes, not just foreclosures.

Additionally, if the area was hit particularly hard by the economic downturn, it may have numerous foreclosures. If there are many houses selling at below normal prices, home buyers may be moving into a neighborhood that will be slow to appreciate in value.

First-time home buyers interested in foreclosed homes should contact The Federal Savings Bank, a veteran owned bank regarding mortgage pre-approval.

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