4 Financial Considerations To Take Before Purchasing A Foreclosed Home

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Canadian homes can be quite expensive, especially in desirable urban areas. As a result, many people cannot afford their mortgage payments, which results in the bank foreclosing on their home. 

While foreclosed homes are quite rare in Canada, property foreclosures can happen and are often sold through power of sale or judicial sale. The bank tries to recuperate the money lost due to missed mortgage payments from the previous owner by selling the property as fast as they can. This does present many opportunities to buyers as the price is lowered, but purchasing a foreclosure property can be risky if proper considerations are not taken.

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More often than not, banks do not want to go through the foreclosure process. It is expensive, time-consuming, and requires legal proceedings. Putting the home up for auction at a low price point also results in lost profit. 

However, foreclosures do happen under extreme circumstances. Generally, lenders will revoke the title of the home once 4 mortgage payments have been missed. Even then, the homeowner still has the opportunity to enter negotiations with their lender before being evicted. If a borrower shows they can start making payments again, the lender may be open to resolving the issue before going further down the foreclosure process. If the bank decides to foreclose the home, the tenants will have 30 days to relocate.

Even if the foreclosed home is priced extremely low, it is still going to cost a pretty penny. Therefore, it is essential that you get your finances in order and increase your credit score so that you can afford monthly mortgage payments and any extra costs that may come with the property. As long as you make your mortgage payments on time and pay in full, you will be strengthening your credit and putting yourself in a better position for better interest rates and approval odds.

4 Financial Considerations You Should Make Before Purchasing A Foreclosed Home

Create A Budget

Buying a foreclosed property is riskier and more complicated than the average home purchase, so you must be extra prepared when you apply for your new mortgage. You must consider the extra significant costs associated with buying a foreclosed property. A foreclosed property will most likely need some extra renovations or repairs to safely live in. Creating a strict budget can prepare you for any expenses that may come your way. 

Consider some of these extra costs that you may run into:

  • Changing the locks
  • Inspection/appraisal
  • Property and land transfer taxes
  • Cleaning and general maintenance
  • Titles or permits 
  • Renovations
  • Turning on utilities (water, gas, electricity, heating)

Have The Property Inspected

One of the best ways to ensure you are making a smart purchase is to have the property inspected and appraised for its value. 

Homeowners facing foreclosure were likely dealing with serious financial problems that prevented them from making their monthly mortgage payments. As such, they were most likely not able to afford routine maintenance and repairs on the property. They may have purposefully neglected the house or caused property damages knowing they were going to lose their home. 

In the event of a foreclosure, the home could have serious problems with the foundation, plumbing, and roof. It is always best to pay for your inspection even if your lender offers to do one for you for an unbiased appraisal. This could help you save money and avoid any unpleasant surprises in the long run.

Be Prepared For The Application Process

An approval process for buying a foreclosure property is just as necessary as with any conventional mortgage. You will have to be prepared for your finances and credit to be checked. 
Here are a few ways you can prepare yourself:

  • Pay down your other outstanding debts
  • Improve your credit
  • Increase savings as much as possible
  • Offer a sizeable down payment
  • Update and organize personal and financial documents required

Hire A Realtor

Because the process of purchasing a foreclosed property is more complex, hiring a realtor has never been more important. Negotiating with a bank is different from negotiating with a homeowner. A real estate agent understands the bank's processes and can anticipate the bank's needs to make the transaction go smoother. 
Buyers often get excited about purchasing foreclosure properties because they believe they are getting an amazing deal with their best interest in mind. Banks, however, are trying to retain as much money they had lost from the previous owners; they create contracts designed to protect themselves—not to benefit the buyer. Your realtor will be there to act as a fiduciary to help you avoid any possible perils and pitfalls.

Contact Our Calgary Realtors Today!

While buying a foreclosed home can be an exciting process, it is important to take financial considerations due to the risky and complicated nature of foreclosed properties. The best way to ensure you do not incur any extra costs or headaches is to make sure you get the property inspected before purchasing. Be prepared for any surprise costs that may come your way and hire a Realtor® to make the transaction process as smooth as possible.

Purchasing a foreclosure property can be an exciting yet complicated process. Luckily, our expert Calgary Realtors® have extensive experience with foreclosure properties and can facilitate the transaction with your best interest in mind. To learn more about how we can help you, contact us at (403) 284-6333 or fill in our online contact form.


How much does a home inspection cost?

Home inspection prices are based on the size, location, and age of your home. Inspecting an apartment or condo can cost anywhere from $250-$350 while inspections for standard homes can cost $450-$600.

When can I buy a foreclosure?

You can purchase a foreclosure as soon as it hits the market. You can find properties on real estate websites or ads, but the best and most efficient way to find valuable foreclosure properties is through a Realtor®. 

The Mel star team has over 40 years of experience in the Canadian Real-Estate market, specializing in foreclosure properties. To learn more about how our top Calgary Realtors® can help you find a valuable foreclosed home, contact us today by calling (403) 284-6333.

Are foreclosure properties in Canada sold at auctions?

Foreclosure properties are quite rare in Canada and are not nearly as common as they are in the United States. Foreclosure properties can be sold at auctions in Canada, but they are normally sold in the traditional real estate market.


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