When people buy a home, they usually do so with a mortgage. A requirement for having a mortgage is that buyers make payments on time every month during the life of the loan. If they don’t, the house will eventually go into foreclosure and the bank will take control of it. The bank will eventually sell the real estate through a foreclosure sale. For buyers, foreclosure sales have some advantages and disadvantages.

Lower price

Foreclosure sales are generally priced lower than a regular sale. That is because the bank simply wants to get rid of the house. Although you want to maximize the price you can get, you will be happy to get your money back and get rid of the responsibility of taking care of the house. Foreclosures often sell for at least 10 percent below the market price, and sometimes even more.

Opportunity to generate capital fast

Because foreclosure sales are priced below the market price, it gives buyers the opportunity to build equity quickly. By getting a bargain, the buyer automatically has value in the property to begin with. Foreclosures often require some work, and their price reflects that, so buyers who are willing to make necessary repairs and improvements can quickly build capital.

Problems

Although they are bargains, foreclosure sales can bring a lot of trouble. Banks don’t want to put money in the houses, so buyers should expect to buy the properties as is and have to invest money in them. Foreclosures can also come with problems related to previous owners. The bank may have a difficult time removing such individuals and may have to forcibly evict them, which can delay the sale. Banks are also wary of foreclosure loans, so anyone looking to buy one should make sure they have a high down payment and good credit. A better option is to buy a foreclosure with cash, which can help speed up the process.

While a foreclosure sale is not an ideal way to sell real estate for either the homeowner or the lender, it is sometimes necessary if the homeowner can no longer keep up with mortgage payments. For buyers, these homes present great opportunities, whether for first-time home buyers or investors looking to get a deal on a potential rental property or purchase a home to repair and trade for profit.