Buying a foreclosed home is a smart way for buyers to save money. These homes sell for less than other homes on the market. They also enable the new buyer to keep paying low monthly mortgage amounts. However, there are several factors to keep in mind when purchasing a home that has been foreclosed. These include the stages that lead to a foreclosure, the benefits and drawbacks, and where you can find a discounted property.

What is a foreclosure?
Foreclosures generally stem when the homeowner cannot pay the required mortgage amount. A mortgage contract has a lien on the homeowner’s property. Therefore, failing to pay the mortgage on time initiates the process of foreclosure. In this process, the lien on the mortgage empowers the lender to seize the home and put it up for sale. If you find a home listed as foreclosed, it means that the residence belongs to the lender.

The stages of a foreclosure
A house is ideally not foreclosed in a day. The process follows several stages before the homeowner has to sign over the property to the lender. The stages involved in foreclosure are as follows:

• Payment default: A payment default happens when the person who owns the home misses at least one payment. A mortgage default ensues after the homeowner misses several payments over many months. The inability to pay the mortgage triggers the pre-foreclosure stage of the foreclosure process.
• Notice of default: Following the missed payments, the lender sends out a notice of default to the concerned owner of the home. The notice is sent after 90 days of missed mortgage payments. It also offers time for the borrower to concoct a new payment plan with the lender to avoid a foreclosure.
• Notice of trustees’ sale: If the borrower cannot pay the outstanding mortgage or settle on a new payment plan, the lender moves on to the next stage. The stage is called the notice of trustees’ sale. The lender must record the potential sale with the relevant county in this stage. The lender must also publish the notice in a local paper.
• Trustees’ sale: Once the notice of the sale is published, the lender has the right to try and sell the property at an auction. However, if the lender cannot sell it at an auction, the home enters the next stage of foreclosure.
• Real estate-owned (REO): If the property does not sell at the public auction, and if the lender is a bank, the lender (the bank) becomes the owner. Banks often try to sell REOs through a real estate agent. They may also list these properties online. Though these properties are sold at lower rates by the bank and other lenders, they are sold as-is and in poor condition. But because of the heavy discount, people interested in a foreclosed home wait for this stage to make their purchase.

The benefits of buying a foreclosed home
One of the benefits of buying a foreclosed home is its discounted price compared to other properties in the same region. Furthermore, a buyer might be entitled to additional benefits like reduced down payments and lower interest rates. Appraisal fees and closing costs may also be waived off when you buy a home that belongs to a lender. The fact that these homes are sold “as-is” can mean they are in mint condition, and you might not have to take on any repair costs at all.

The drawbacks of buying a foreclosed home
There is more than one drawback when buying a foreclosed home. When a foreclosed home is sold “as-is” the buyer may receive it in a bad state. So when you buy a foreclosed home, you are at risk of incurring hidden costs. These costs may include those linked to repairs, back taxes, and liens. Further, buying a foreclosed home is time-consuming and requires lots of paperwork. Offers made by other investors, potential occupants, and professional house flippers can also make it annoying to buy the home.

Where to find a foreclosed home
Foreclosed homes are listed across multiple avenues regularly. You can look for them on multiple-listing service websites, local newspapers, and periodicals. Foreclosure listings may also be found in bank offices and local newspapers. You may be unable to check the foreclosure status of the property. The status is generally found in the property description. Several websites specialize in homes and properties in foreclosure that you can also use to find a discounted home.