June 15, 2012 -

The previous post gave you a primer on key facts about buying a foreclosed home and helped you understand the differences in buying from a bank (who owns the foreclosed property) versus buying a non-foreclosed home from an individual.  As promised in that post, this one will point out some common pitfalls found when buying a foreclosed home—and help you avoid them.  In doing so, you can save yourself both money and frustration.

So without further ado, here are the five biggest pitfalls in buying a foreclosed home.

Pitfall #1:  Not Using an Agent with Foreclosure Experience

Dealing with foreclosed homes requires specialized knowledge and experience.  While any agent may be able to do it, a foreclosure specialist excels.  To look at it another way, consider a mechanic who works on any type of car versus one who works on only the brand you own.  The specialist is likely to have niche knowledge, be more efficient, and be better able to avoid mistakes.  They may also have more contacts that can help.

Pitfall #2:  Not Being Pre-Approved for Your Loan

If you have avoided the first pitfall, your agent will likely advise you to avoid this one—do so.  Getting preapproved saves you from wasting time looking at houses you cannot afford.  Of course, you are buying a foreclosed house and that means your mortgage is only part of your financial equation.  The other part is pitfall #3.

Pitfall #3:  Not Knowing and/or Being Able to Pay Repair Costs

If you can afford a monthly payment of $1,000 and you get a mortgage for that amount, will you have enough for any repairs that need to be made?  Remember, foreclosures are sold as-is.  Sometimes that great price on the home comes with thousands of dollars in repairs that need to be made.  Do not become one of those unfortunate homeowners who became trapped in a home they could not afford to repair.  You get that information by avoiding the next pitfall.

Pitfall #4:  Not Getting Full Inspections

A home inspection can range from basic to exhaustive—and you want the exhaustive variety, especially if it is an older home.  You want a foundation to roof, wall to wall, and inside and out inspection.  While doing a bit of research can help you self-educate and spot some major problems on your own, you will need to call in a trained and experienced inspector when you find a home you are ready to buy.

Armed with a list of problems (if any—not all foreclosures are fixer-ups), you will need to get repair estimates.  While you are primarily concerned with major problems, be aware that a lot of little problems can add up and that you need to budget for them.

Remember, the real cost of the house is the sale price plus repair costs.  You cannot know if it is a good deal without both figures.

Pitfall #5:  Not Knowing Your Market

Again, avoiding pitfall #1 should help you avoid this one, too.  There are many factors that determine a home’s value and the neighborhood is one of them.  For example, if there is a trend of increasing foreclosures in the neighborhood then you may be buying a home whose value will decrease.

Buying a foreclosed house can be a great way to get the most home for your dollar.  By avoiding those pitfalls, you can avoid having your dream home turn into a financial nightmare.

Do you need some help finding and buying your new home?  Check our listings to find local mortgage brokers. real estate agents, and other service providers .