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Why it makes financial sense to buy a foreclosure

Ginger Dean

September 29, 2014

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

People buy real estate for a variety of reasons, but most are looking for the same thing out of the deal: to buy a place at the lowest price possible. What better way to do that than with a foreclosure? Check out the pros and cons below of going this route and tell us in the comments if this is something you'd ever consider yourself!

2 reasons why buying a foreclosure is a good investment:

The low cost. One of the major advantages to buying a foreclosure? The purchase price is low. When someone can no longer afford their home, the bank wants to get as much money as they can as fast as they can. This is why many homeowners and real estate investors look to purchase properties in foreclosure. According to MSN, "the No. 1 reason to buy a foreclosure is the potential for a good bargain. Distressed properties have always come with a built-in discount."

The low cost makes it possible to flip or buy, rent and hold. If you have a set budget for your home the less money you spend on the purchase price, the more money you can spend on home renovations. You may want to buy a foreclosure, fix it up, and sell it, or you may want to buy it, hold it, and rent it out. Either way keeping your purchase price low allows for more extravagant renovations.

2 good reasons why you may not want to buy a foreclosure:

The foreclosure process is a lengthy one. It requires a lot of patience from the time the property goes to auction to the time the new owner takes possession. It's a good idea for homebuyers to get the home inspected before purchasing a home at auction, if at all possible. This may add a bit more time to the foreclosure process but it's worth it because it ensures the low purchase price is actually a good deal and not a rip off.

The right of redemption laws can also make the foreclosure process longer than expected. In certain states homeowners can exercise the right of redemption, which in plain English means they have the chance to redeem themselves in the eyes of their lender and pay off their mortgage debt. This makes it tricky for people buying a home in foreclosure because homeowners can exercise this right on or before the foreclosure date. They can also exercise this right after the foreclosure date with additional fees and penalties.

Overall, buying a home in foreclosure can be a good investment if you have the time, money, and energy to invest. Still not convinced one way or another? See if you can find someone with firsthand experience of the process to talk things out with before you decide if this route is for you.

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