10 Things You Must Know Before Buying a Foreclosure
Buying a home is a huge expense and definitely something that takes a lot of consideration. While making the choice to purchase a foreclosure or a short sale is not a bad decision, it can definitely take a little more thought, consideration, time and money than a newer home will. From experience, I want to share with you 10 things you must know before buying a foreclosure and I am sure that they will help you make a thoughtful decision.
When we moved cross country, we were initially looking to rent a home. Having 4 cats can make that difficult . Our selection was very limited and we quickly realized that we were not going to get a nice place for our max budget of $1100. Matter of fact, we were going to get a small 2-3 bedroom, 70’s style home in the not so great part of town. Don’t even get me started on the cost of an apartment. $1400 is just too much for lack of privacy in my book. So we decided to buy. We had 2 days to find a place. We found a foreclosure that was a really good price and we jumped on it. We didn’t imagine we would learn SO much from our first homeowner experience, though.
What do you REALLY need to know before buying a foreclosure?
We learned about things we should have paid attention to and things that we wish we would have known. Now, I want to share them with you so that maybe you will have a better experience in your first year in a home.
1. Research your neighborhood.
This is important especially for longevity. Are there good schools in the district, a lot of churches, accessible grocery stores/offices (think postal, county), good neighbor vibes? Will your little ones be going to school in a “D” school or an “A” school. We quickly found out that we would not send Little Mister to the district elementary school as it is a failing school. Not good! You want to make sure, especially if you have kiddos, that your neighborhood has some other kids and that it is safe for them to play outside. What is the crime rate in your neighborhood and surrounding areas? Know all of this.
Be sure to go to the house at different times of the day to get the best feel for the activity that occurs in the neighborhood.
2. Get an inspection report
Matter of fact, have company (or five) read your inspection report and let them give you an estimate on cost of repairs. You will not know the history of the house, so be prepared for a lot of “extras” to come through. If it is too much to handle, walk away. If the bank has had work done on the house, be sure to ask them for the company that completed the work so that you can reference them if ever you needed a repair. Replacements should be transferable from owner to owner. Be sure to get this on paper!!! (we learned that the hard way, can you tell?)
3. Get your inspection report looked over by a professional
If you are serious about buying the home and you have looked over the inspection report with a knowledgable person, now is the time to get the really expensive stuff looked over by a pro. Here are your major costs in a home: the roof, plumbing, electrical, foundation and the HVAC/cooling unit. We just got lucky with most of these big ticket items. They were all new and improved except… for the plumbing. The septic tank is what got us. Did you know that for a family of 3-4, you should have it cleaned out every 3 years? Crazy, I know. Our tank (we later found out after moving in) was full to the top! It took extra time and money to get it cleared out, plus, they had to cut a pipe in order to get a huge chunk of grease out of it.
*For the love, don’t put grease down your sink. We put ours in a glass jar and toss it when it is full*
We also ended up getting an AC guy out a month or two after we moved in. Which was all clear except that we needed more insulation up in the attic. That was a pretty penny too!
4. Know the right questions to ask
When you are seriously considering a foreclosure, ask around the neighborhood. The neighbors will have a lot more intel than you ever will. We have since found out that the people here prior to us just trashed this home. There was at one point a hole in the roof and in the garage door. (Hence the new roof and garage door I guess). That also explains the weird fix upstairs in the attic. You would want to know about something major such as a sewage backup and flood, but the bank will not tell you all that.
5. Review the property taxes
Maybe this one should be #1 on your list, but here it sits as #5:). When you have decided that you want to buy, you will need to look into taxes yourself. Yearly taxes charged will be given to you as an “estimate” at time of purchase. This “estimate” is based off of what the last resident paid. What does this mean for you? If the last occupants received many tax breaks say for prevention of foreclosure or homestead exemption, then you will be quoted that nice reduced tax rate. Come time for the next year, your taxes will increase to your own cost. In my county, I cannot apply for a homestead exemption until I have been in my home for 1 year. That means that we will not be getting an exemption until next fiscal year.
Also, there are sometimes tax liens on properties that the new owner would then be accountable for. Find this out prior to signing a contract.
6. Change your locks
Once you move in, you can just know that you will have to change some things. Your locks should be changed immediately! Many people have been inside of a foreclosed home and you cannot trust that one of them didn’t keep a key. Check that all your doors and windows have functioning locks. This is pretty important, but looked over by many home owners. Safety first!
7. Check your outside area for any hazards
The bank is concerned about the house, not so much the yard. Check for any types of hazards such as old building materials, waste, electrical lines, or dead trees. We had a pretty dead tree out back that needed to go, but didn’t even look at it until after being there for a month. We did end up taking it down for a nice hefty fee of $700, but that was never something that would have come up on inspection or come from the bank who owned it.
8. Get water damage fixed ASAP
If you have water damage of any sort and decide to purchase knowing that, please just delve into it before moving in. If perhaps you did not do this prior to move in, do it immediately following closing. Pull out the cabinet if need be or pull up flooring. Some foreclosures sit vacant for years so it is important that problems be looked at immediately! We ended up getting rid of the cabinet in both of our bathrooms because of water damage. There were problems, but we fixed them and that is all there is to that.
9. Get an exterminator in
Especially if the house has been vacant for a while, you will want to get a bug man in there ASAP! Bugs love an unoccupied home. Here in the lovely state of Florida, we have roaches. There was too much evidence of roaches for us to not acknowledge. I don’t love pesticides, especially in my home, but I don’t love bugs either. We sprayed once and they were gone!
10. Save money
Just a general thought here as the last one. If you are buying a foreclosure, be sure that you have a bit of cushion in your emergency savings account and in your monthly budget. They can get pricey, and while they don’t all cost a lot of money, it is better to have it set aside if needed.
Generally speaking, you can get a great home and a great deal if it is a foreclosure. It is important to know what you are walking into and to be prepared for a cost. Even if the house wasn’t vacant for a long time, it was a foreclosure which means that the owners probably didn’t have the money to pay for upkeep. If you are prepared for the cost, then it won’t be so hard to swallow. How prepared should you be, you ask? I would recommend at least $5-10K which will cover large costs or several not-so-large repairs.
And there you have 10 things you must know before buying a foreclosure. I definitely wish that I had read a list like this before we made our home purchase. While we are thankful for our purchase in the end, we could have been a little more prepared mentally for the adventure.
Are you looking to buy a foreclosure? What tips do you think are helpful to read now?