Updated: May 21, 2018
Foreclosures are a big part of the Houston market. Often, I am asked about the possibility of buying a foreclosure as a house to live in. The purpose of this informative blog is not to state whether or not I believe it is a great idea, but rather giving you the facts so that you can decide for yourself if this is the route you want to take for yourself.
First of all, what exactly is a foreclosure?
A foreclosure is a house that is being sold (often times under retail value) because the previous owner has fell behind on payments forcing the mortgage holder (or bank) to reclaim possession.
The benefit of a foreclosure (from a consumer perspective) is obvious - buying a property for less than retail value. Before proceeding, you must consider how you are paying for the property. Now keep in mind, this article is for those buying to live in it. MOST foreclosures are in a "less than fair" or "rehab" condition. Simply meaning some work needs to be done to make it livable. If you are buying cash, I would recommend hiring an experienced contractor to come out with you to view the property. This contractor will be able to see things in the house that may need to be replaced, changed, removed, fixed, etc and give you a quote of all work to be complete. Buying a home is an investment and knowing your numbers plays an intricate role on whether or not this is a good deal or not. Once you have your repair numbers and price of the home, compare that with what other homes in that neighborhood and see what they selling for. I recommend a realtor for this process for the most accurate comps. If the numbers "fit" and make sense to you, proceed with purchase. Financing If you're not buying cash, it's only safe for me to assume you will be taking out a loan to finance the home. The most commonly used loan for owner-occupants is the FHA loan, which has the least stipulations and guidelines to get approved. The hiccup that may occur when using this loan is that any home you purchase must fit under FHA's guidelines for them to approve financing. A LOT of foreclosure may not fit these guidelines which would not permit the purchase. A Conventional loan may allow you to purchase but will require more money down not including rehab costs. Run your numbers with your contractor, mortgage lender and agent prior to making your decision. Lastly, when buying a foreclosure, you could be competing with other investors looking to buy with cash for their own purposes. This can often raise the purchase price and be a tedious process in acquiring the property As you can see, buying a foreclosure home to live in isn't as cut and dry as your standard/traditional home. It doesn't mean it can't be worth it, but it does mean it really depends on the house and numbers. I hope this article was a good source of information for you to consider for your home purchase. Please leave a comment of your thoughts below and thank you for reading.