I bought a foreclosed home for $170,000, and there are 4 things I'd tell anyone who's thinking of doing the same
Courtesy of Kelly Burch
- Buying a foreclosure enabled us to get a house at a bargain.
- However, there were a lot of unknowns, including whether the septic system or plumbing would work.
- The process also took longer than a normal sale because the bank was slow to respond.
- All told, though, I would certainly consider buying a foreclosure again.
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When people hear that my husband and I bought our 2,700 square-foot house in New Hampshire on 2.3 acres for $170,000, they're shocked.It's true that we got a great deal on the rural property, but that happened because we were willing to take risks that put other buyers off, starting with the fact that we were shopping for foreclosures. Advertisement
Maybe that's true, but to us, shopping for foreclosures made sense.My husband is very handy, so I trusted his instinct about the state of the house. In addition, because we were renting out out first home (not selling it), we didn't have a strict timeline to adhere to. Plus, buying a foreclosure allowed us to stretch our housing budget and look at homes with potential for equity right away.
Still, the process of buying a foreclosure was very different from a traditional sale. Here's what I learned along the way.
Everything happens in slow motionWe submitted the paperwork an hour later, but just after we left the real estate agent's office my phone rang. It was our agent, explaining that the bank selling the property had made her aware that there were multiple offers, so we should come in immediately with our "best and highest" offer. Advertisement
My husband and I pulled over the car to consider our options and decided to offer $7,000 over the asking price in hopes of weeding out the competition.
After scrambling to meet the bank's demand, we waited ... and waited. It took them more than 10 days to officially accept the offer. This played out again and again throughout the buying process: we scrambled to get the bank everything they needed, and they took their sweet time.It culminated when our closing was delayed by a day because the bank did not submit the final paperwork on time. As I tried to stay calm on the phone with the closing attorney, she sighed. Advertisement
"That's the thing about foreclosures," she said. "Banks operate on their own time."
Foreclosures complicate your financing
My husband and I were purchasing our home using traditional financing, which has fewer property regulations than financing secured through the FHA or VA. That's lucky, because our home likely wouldn't have qualified for either program.The FHA often requires that homes meet basic safety requirements, like having proper railings on all porches. Most sellers are willing to make small changes to help the property meet a lender's requirements, but banks don't bother. Advertisement
However, the bank that owned our property wouldn't let us turn on the water to test it (even if we paid). Because of that, we needed to put in an extra $7,500 at closing to cover any potential repairs. We got that money back when the water was turned on, but it was a stretch to come up with those extra funds.
There are a lot of unknownsEarly on in the buying process, we learned that the pipes in our home had burst because the bank had not properly winterized the property. Advertisement
We knew there was a problem, but didn't know if it only affected the basement pipes (a $3,000 to 5,000 fix) or the whole heating system (which would have cost us more than $15,000 to replace). We weren't able to get an accurate estimate because the bank refused to let us turn on the water to the house.My husband and I spent two long days discussing the unknowns with the property. In the best-case scenario, we would spend a few thousand dollars on repairs, but in the worst case we might need to spend more than $25,000 just to be able to shower and flush toilets. Advertisement
We decided to go forward with the sale because we thought the house was worth more than we would pay in repairs, but only after fully considering both possibilities and discussing them with our real estate agent.
Gather as much information as you can
Since we were dealing with so many unknowns, we invested heavily in inspecting the house where we could.We did a full home inspection, well water test, radon test, and partial septic test. Overall, testing cost us about $2,000. However, it was well worth it. Advertisement
Not only did the testing give us peace of mind, but it also enabled us to go back to the bank and request that they contribute to some necessary repairs. Ultimately, they agreed to pay us $5,000 toward the work that needed to be done.
It's worth it in the end
My family has now been in our new house for about three months, and it's finally starting to feel like home. Our critical repairs to the plumbing system ended up costing almost exactly the $5,000 that the bank contributed, and our septic is working just fine (touch wood!).The delays in the buying process and the stress of not knowing the full condition of the home were tough during the six weeks between when we made our offer and when we closed. But now that we're in our home, that seems long ago.Advertisement
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