Home prices in the United States keep on increasing. According to a news article in Global Property Guide, the seasonally adjusted price index rose 5.83 percent, making it the highest since 2014. The national average cost to build a home is almost $288,000 while it can go as much as $425,000 depending on the design, materials used, size, and location, among others.
Unless you are lucky to have saved a lot of money through the years, you will get your home through a mortgage, which makes it more expensive. This is because you have to pay for interest on top of the principal. You will then repay your dues every year for the next 25 to 30 years.
If you’re thinking of owning a home whether for investment or for personal use, you have two options: buy or build a tiny home or buy a foreclosed property. The latter has a better advantage since it’s legal in all states. Moreover, you have many options available in the market.
What Are Foreclosed Homes?
Foreclosure is a legal process undertaken by the lender in the hopes of recovering any losses that come with the default of repayments. Default occurs when the borrower fails to pay the mortgage for a certain period, usually three consecutive months.
Foreclosure is different from pre-foreclosure. In the latter, the borrower remains to be the owner and still has the ability to stop the foreclosure process. Either way, it’s a lengthy and complex procedure lenders don’t want to engage in. Thus, they want to sell the property as soon as possible. One of these is through an auction.
What Happens during a Foreclosure Auction?
The foreclosure auction is done by a third party, who can be a trustee or a sheriff. During this event, the lender sets a minimum bid price. Potential buyers then try to outbid one another until there is the highest bidder, who wins the property.
Lenders and auctioneers will tell you when auctions are about to happen. This way, you have enough time to check the property. This is important since homes are sold as is. If something needs repair, you have to spend for it.
Unless you know auctioneers, there’s a good chance you don’t know when and where these foreclosure auctions happen. To help you, you can subscribe to an auction listing. It is a database of all auctions around the country. It is updated daily to ensure you have the latest and accurate information.
Who Can Bid in a Foreclosure Auction?
Unlike car auctions that are usually attended and meant for car dealers, foreclosure auctions are normally open to the public. They are more ideal for:
- People who want to spend less on a home – How much you pay for a foreclosed house varies, but it’s typically significantly less than its actual home price. One, lenders need to recover only the remaining balance (and some fees). They also cannot take advantage of the homeowner and the buyer by aiming for a profit. Further, lenders’ biggest concern is recovery. The sooner they can sell the house, the better.
- Individuals who like to invest in a real estate – Demand continues to soar, which makes owning a house a good investment. However, if you want to make a profit from it, you need to find a property that’s desirable. It means the house is in a strategic location in a city or suburb with an appealing lifestyle and amenities. Houses in these places are not cheap. A foreclosure auction gives you the opportunity to buy a home in these areas.
- Those who don’t want to save time – Looking for a house is a time-consuming process. It can run for weeks or even months. A foreclosure auction allows you to check many available houses over a short period. But there are challenges. First, it’s not only you who’s going to be checking the property. Second, you may not have enough time for inspection. So before you visit, keep your checklist handy. When necessary, bring along an expert like a builder or a plumber.
- People who have cash – Just because you’re buying a house in a foreclosure auction doesn’t mean you can walk away with a new home without paying anything. A lot of these auctions are all-cash basis, although some may want you to issue a cashier’s check or put the money on escrow. A number will allow you to finance it, provided you have gone through the pre-approval process. In the end, whether you pay all cash or finance it, you have to spend for an earnest deposit and other charges and fees. Furthermore, before you join an auction, you may have to pay for an entry fee.
- Those who have a good credit record or score – This is especially true if you want to bid and then later finance the purchase. The fact these are foreclosed homes, lenders will be stricter on people who wish to apply for another mortgage. One of the common requirements is a credit score. The ideal credit score is 700 and above.
- People who don’t want to deal with real estate agents – When you want to buy a house, usually, the first step is to reach out to an agent. This person will have a listing of houses up for sale. His or her knowledge and expertise will help you decide whether a property is worth a shot or not. The problem is sometimes the buying process is more of a sales pitch. Going through a foreclosure auction lets you skip dealing with them, giving you more control over your decision making.
Foreclosure auctions are not for everyone. It’s not ideal for people who don’t want to compete with other buyers or spend for repair and upgrades. It may not be the best for those who are still trying to improve their credit score or have little knowledge about homes. But they do have a lot of benefits, which, at the very least, are worth considering.