A recent survey from the National Association of Realtors (NAR) suggests that first-time homebuyers may have an incentive to buy foreclosures. In fact, 65 percent of first-time buyers said they’d consider a foreclosure when looking for a new home. According to DSNews.com, first-time buyers often have smaller budgets compared to individuals and families who have purchased a home previously. As a result of limited funding, first-time homebuyers might head toward the foreclosure market.
As many Chicago neighborhoods still contain foreclosed homes and are in need of rehabilitation, this could be good news. But at the same time, the article in DSNews.com suggests that many first-time homebuyers may not know what they’re getting themselves into when they begin looking at foreclosures.
Does it Makes Sense to Buy a Foreclosure?
According to a collection of surveys on Doorsteps.com, there are three primary reasons that first-time buyers think about buying foreclosures. First, very few first-time buyers have a lot of knowledge about the buying process, and as a result they don’t know the ins and outs of buying a foreclosure. In other words, they have “little reason to fear a foreclosure.”
Second, the average first-time buyer spends about $65,900 less on a house than a repeat buyer. Repeat buyers tend to spend, on average, $220,000 on a new home, while first-time buyers come in at an average of $154,100. The smaller budget leads first-time buyers “to hunt for a bargain.”
And finally, the market is inundated with foreclosures! Since the market has seen more foreclosures in the past few years than ever before, first-time buyers are likely to see a lot of options in the foreclosure market. In fact, DSNews.com reports that that are currently 4.56 million properties that are currently past due, and 1.52 million of those have moved into foreclosure inventory in the past month or two. With the “widespread availability,” first-time buyers might consider a foreclosure purchase as a reasonable risk that also saves some money in the long run.
Foreclosures can make for a good deal financially, but is it worth the extra headache? When buyers begin to look at foreclosures, Doorsteps.com suggests that there are three primary reasons that drive those buyers away. Often, buyers can’t find a foreclosure that satisfies “enough of their wants and needs.” While this can be true of many homes on the market, the other reasons deal more closely with problems we tend to think about when we hear “foreclosure.” For many buyers, the foreclosed property was in such bad condition that it didn’t seem worth it to put in the money or the effort for repair. And for many others, they found that the process of buying a foreclosure was too difficult.
Tips for First-Time Buyers
Given the news that first-time buyers might be interested in foreclosures, Bankrate.com offers some tips for first-time buyers:
· Check the selling prices of comparable properties in your area so you know what you should expect to pay
· Use a mortgage calculator to see what you can afford
· Make sure you know the total monthly housing cost associated with a property, including insurance and taxes
· Find out how much you’ll have to pay in closing costs—this can add a lot of expense onto the purchase price
· Can your budget handle the monthly mortgage? According to Fannie Mae, you shouldn’t be spending more than 28% of your income on your housing costs, and if you spend more than 30%, you could become house poor
· Speak to experienced real estate agents and attorneys in your area
· Keep the big picture in mind—while purchasing a home can be a great investment, it can also come with unexpected costs for repairs and other problems
Experienced foreclosure attorneys are familiar with the real estate market and the process of buying a foreclosed property. If you have questions, don’t hesitate to contact us.
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