With the struggling economy and home foreclosures at their highest ever, those of you who are in the market for buying a new home for yourselves or as an investment have unprecedented opportunities to save. Even if you are limited as to how much you can spend, you might be surprised at how much you can save on pre foreclosure homes (also referred to as default homes). Here are some pros and cons to consider when purchasing these types of properties.

The easiest part of the whole process is finding pre foreclosure homes. You can locate these on the internet through local listings (as by law they must be listed publicly) or on one of the many sites that are specifically designed to help those who are searching for homes in the foreclosure or pre foreclosure process. While it is easier to find foreclosures, one of the benefits of zoning in on a pre foreclosure is that you would probably be able to move into the house fairly quickly because not enough time has passed for the house to go into a state of disrepair.

Another advantage of purchasing a home in the default or pre foreclosure phase is that, often, the homes are actually listed by real estate agents. So, you would go through the “normal” home-buying process instead of having to deal with a possibly lengthy foreclosure hassle. In the pre foreclosure stage, you can actually take a look at the house and communicate with the home owner through the real estate agent. You do need to keep in mind that the homeowner will most likely be upset about being forced to sell his/her home. That is why buying a pre foreclosure through a real estate agent can turn into a real advantage.

Be aware of the negative aspects of buying a home in the default stage as well. maybe the biggest one is that you will not get a huge discount on the property as you may get in actual foreclosures. Usually the realtors handling pre foreclosures will list the homes closer to assessed value compared to those properties that are listed privately. Remember that a portion of the buy price goes into their commission, so it’s only natural that they will attempt to sell for as much as possible. Evaluate your bargaining power as well when you are discussing the deal with the agent/homeowner.

In general, pre foreclosure homes are on the inexpensive side, but you will most likely save more if you negotiate directly with the seller. Here time is on your side because homeowners that are suffering through pre foreclosure stage are under a great deal of pressure to sell before their home enters foreclosure. If their house does end up being seized by the lender, their credit rating will take a serious hit. And some homeowners may offer you an apparently too-good-to-be-true deal just to clear up their debt before they actually lost their home. The obvious disadvantage in this situation is that dealings with the upset homeowner will probably not be pleasant.

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In terms of short sales and foreclosures, a lot of focus is placed on profits. Yes, if you invest money into foreclosures and short sales, you should turn a profit. There is however one aspect that many rarely take into consideration. That is buying a first home. If you are a hopeful homeowner who is operating on a limited budget or if you just want to limit your costs, foreclosures and short sales should be examined. Anymore can make a acquire offer. They aren’t just for investors.

Now that you know it is possible for anyone to buy short sale properties, is it the right choice for you? It depends. Using short sales to buy a first home does have its pros and cons. What are they?

The Pros

A good value for the money. If you didn’t already know, short sales are properties sold for less than the outstanding mortgage due. For mortgage lenders and borrowers, they are ideal alternatives. Mortgage borrowers avoid embarrassment and the negative financial consequences of foreclosures. Mortgage lenders are able to avoid long and costly foreclosure proceedings. Since most homeowners owe less than the value of their home, you get a good deal. For example, if the outstanding mortgage is for $120,000, you could expect to pay around $100,000. This does seem high, but not when you get a property valued at over $200,000. You still benefit from covering the outstanding mortgage.

Most homes are well-kept. Of course, you will need to make needed upgrades and repairs. homeowners who are unable to pay their mortgage, are unlikely to afford repairs and upgrades. The home may need a new roof, new carpeting, and so forth. With that said, most homes are in good condition. homeowners with delinquent mortgages care about their homes, they just can’t afford them any longer. With foreclosures, you get squatters. These delinquent buyers refuse to leave the home without force. These disgruntled persons are likely to damage property, as they honestly don’t care anymore.

Can later be resold for a profit. If you are looking to buy a cheap first home, your goal is to get a good deal now. Don’t discount the future financial benefits of short sale properties. Since you get a good value for your money, you automatically profit. Using the above mentioned example, if you buy a home with an appraised $200,000 value for only $100,000 you automatically profit from the resale. Add in years of improvements and upgrades and that value should only increase.

The Cons

The process does take time. Most mortgage lenders consider short sales a last ditch effort to avoid foreclosure. They take time to accept a acquire offer. During that time, they are comparing short sales with foreclosure and possibly waiting for a better offer. Some report waiting more than six months for lender approval. Luckily, if you are renting you are in a relatively good position. Negotiate with your current landlord. Let them know you are in the process of trying to buy a property. If you have history of being a good and paying tenant, they may operate on a month-by-month basis.

The cost is higher than foreclosures. Typically, foreclosures have lower selling prices. As previously stated, short sales give you a good value for your money. This is because you get a relatively well-kept for home without going through an intimidating and fast paced foreclosure auction.

So, should you buy a short sale property as a first home? The decision is yours to make. It won’t hurt to look, but if you goal is to avoid intimidating foreclosure auctions and get the best value for your money, foreclosure short sales should be closely examined.

There are also factors that make investing in foreclosed homes something to think carefully about before jumping in. When compared to all of the advantages, the disadvantages involved are only a very small factor. This is why investment in foreclosed homes is still popular. Let’s look at some of the disadvantages involved in buying foreclosed homes.

Liens and Liabilities

In some cases, foreclosed homes may have liens in the form of unpaid taxes. Liabilities regarding the property title could also be involved. A clear list of these factors should be given in advanced so that the bidder can bid properly. Buying the home for a high bid and then spending too much on the liens may not be profitable for the buyer. You should also consider that there will be a large amount of expensive paperwork involved in such liens. These in turn will increase the time before the transfer of ownership can take place. Lack of research on liens and liabilities associated with a property may end up causing you a large amount of wasted time and money.

Eviction of house Owners

Many of the house owners will try dirty measures to keep their home. Some may refuse to move. This may be due either to their helplessness or their rage towards the lender. After the auction, it is the responsibility of the buyer to evict the owners from the home. This might can turn out to be a tough task. The buyer may not succeed in convincing the house owners through civil talks. If the previous owner refuses to leave, the new owner will have to begin the legal process to force them out. Again, this can involve a lot of time and money. It is always better to buy a foreclosed home when you know that the previous owners have already moved. This entire problem can be avoided with just a little research before bidding in an auction.

Condition of the property

This is a very important factor because it is where the largest amount of money will be spent. Some of the foreclosed homes will be in good condition and will also be in a good neighborhood. In these cases, very little will need to be spent on repairs to make it a great investment. But in many cases, the foreclosed home will have many financial difficulties awaiting the new owner. These properties will often require large amount of repairs and renovations. It is justifiable only if the buyer has considered these costs when bidding and can afford the repairs. The condition of the house should never be surprise for the buyer after the buy. The buyer must have done a thorough study of the home before attending the auction.

Different Buying Procedure

After making the winning bid, you must spend ample time on the paperwork, being sure that it is very clear. The sale of foreclosed homes does not involve any sort of guarantee, unlike other real estate transactions. This means that all of the formalities must be clearly met. A detailed study of all the probable loop holes in the transaction must be made by the bidder to avoid being ending up in a mess. Even though the paperwork is quite expensive, when the cost is compared to the profit potential involved in the investment in foreclosed homes, it is worth the cost.

Financial terror

Most of the foreclosure auction demands payment of the amount immediately upon winning the bid. This payment can be met only by investors who have cash on hand or who have other financial credit options. Due to this, only a filtered number of investors have a chance to bid in auctions. In foreclosure auctions, a person is not allowed to bid above the amount he possesses at the auction as cash or cashier’s check. An eligible investor will lose his chance to win the auction if the cash is not in hand. This factor also requires research before attending the auction, to find out what percentage of the bid must be paid immediately upon winning the auction.

We can conclude that a foreclosure auction requires doing a good amount of research before actually bidding. usually, doing the proper research will wipe out virtually all of the disadvantages to buying at auction.

Foreclosed homes are always an attraction for real estate investors as well as for people who intend to buy a home to live in. There might be some reasons behind this popularity of foreclosed homes. Other than the possibility of a better deal, there are other advantages of buying foreclosed homes. Read on and find out what makes foreclosed homes a much better option.

> Available at Lower Price

Foreclosed homes are usually available at lower prices than their counterpart market values. Usually, the prices of foreclosed homes are the pending amounts to be paid to the foreclosing lender, which will have been partially paid off by the previous owners. As far as a buyer is concerned, that will be one of the best deals he can get. Foreclosed homes are available at a much lower price than their counterparts in the real estate market. There is also a huge possibility of bigger discounts on such homes.

> Good for reselling

Usually foreclosed homes are fixer upper homes that require some amount of repairs and renovation. Mostly, buyers of foreclosed homes resell the properties after making small-scale repairs, which will be very profitable for them. This follows the format “buy low, sell high.” This deal will attract a large number of investors because the reseller will be selling it for a price that can compete with the market value in the real estate market.

> Attractive Closing Cost

Foreclosing lenders are usually banks or government agencies. They will be in a hurry to sell the home to recover their losses. They will be ready to accept lower offers even on down payment, financing options, closing cost and other miscellaneous costs associated with buying a home. Many of these sellers offer such homes at attractive lower prices to overcome their business losses as fast as possible and these affordable prices turn out to be great deals for the buyers.

> Ready to use immediately

usually a foreclosed home will be vacated and so it will be ready for use by the new owners as soon as they buy it. They will not have to wait any longer for the previous owners to move out thus, the winning bidder can do some procedures freely like renovating and reselling the property or settling down with their family as soon as possible. As it is a publicly owned property after foreclosure, the negotiations with the previous house owners will be reduced to a great extent. So a foreclosed home is really a “safe buy” for the investors.

> Easy availability of finance

As foreclosed homes are mostly owned by banks and are more concerned in overcoming their losses on the quick sale of the home, they will not be much worried about the profit unlike individual sellers or real estate investors. Financial flexibility and great offers will be available from the foreclosed seller when buying a home at foreclosure auction. This means that buyers at an auction will have great payment options upon purchasing a foreclosed home.

> Greater probability of Profit

Foreclosed homes are one of the wisest ideas for investors because of profitability involved in it. The home they buy may require some minor amount of renovation or preservation. The amount spent on the home can be regained with great profit by resale, equity building, renting or other investment options. Since the possibility of profit in this investment is quite clear before the auction itself, there is very little risk involved for the investor.

> Tax Advantages

There will be significant tax advantages involved if the foreclosed home purchased is going to be the buyer’s primary residence. The interest to be paid on the mortgage will be tax-deductible. This also eradicates the profit tax involved when selling the home. The value of the property can actually be appreciating after making some repairs and other renovation while you are depreciating the asset on your tax return.

Now we got a clear idea on why foreclosure auctions are so famous among investors.

We are neither Tax nor Legal Advisors, so please consult you Tax Advisor or Attorney for any Legal and Tax Recommendations. 

Unfinished homes present a great way to save a lot of money and get yourself a new home in the process. If you buy an unfinished home, you can keep your monthly mortgage payment low and also lower your initial investment. You may also be able to buy a larger foundation size as well, which you can easily add on to and save money in the process.

Normally, unfinished starter homes leave the upstairs area unfinished. The question here, is just how much equity you want to put into an unfinished area. Sometimes though, an unfinished home may leave the roofing, framing, plumbing, or electrical aspects unfinished. Before you make a purchase, you should always decide how much money you have to finish what needs to be finished.

If the home you are looking at has plans for a garage, you can save thousands if you decide not to go with the garage. On the other hand, if there is another attached room that is planned to go onto the house, you can save just as much if you decide to forgo it. There are always ways that you can save money just by looking at the plans. Unfinished homes may have other planned on additions as well, in which you can save a lot of money just by leaving them out.

The is something that you should always keep in mind. When builders acquire a piece of property that they plan to build a home on, they will do everything they can do make as much money as possible on their homes. You might be able to get them to agree to some of these ideas, although they probably won’t agree to all of them. Building homes can be a very profitable business – which is why most companies like to build their homes exactly as the plans call for.

When looking at unfinished homes, you also need to look at what banks are willing to accept. If you are planning to get a mortgage, most banks will need to ensure that the home is up to local codes and in living condition. What this means, is that there will need to be a living room, bedroom, and other rooms finished. If the home is lacking quite a bit in terms of being unfinished, most banks won’t give you a mortgage.

Most banks are also known to turn down unfinished home mortgages that they feel will have trouble selling in the event that you default. Normally, the entire downstairs area will need to be finished, along with most of the landscaping. You might be able to do some of it yourself and save money, although in most cases the home builder will need to do a majority of the topsoil and grass just to satisfy the bank. Banks have strict requirements when it comes to unfinished homes, which is why you should always check with your bank before you invest in an unfinished home.

As most of us already know, buying an unfinished home provides an excellent way to get into the housing market and get your very own home. Unfinished homes also allow potential buyers the chance to grow into their home along with their family. If you are interested in saving money, you should be sure to talk to the builder. This way, you can go over the plans and decide what doesn’t need to be there. In most cases you can save a lot of money and still get a home that will provide years and years of memories for yourself and your entire family.