Should First-Time Buyers Consider Buying A Foreclosure?

Is A Foreclosure The Right Choice For First-Time Buyers?

Foreclosures are popular with buyers interested in purchasing rental properties or who want to buy, fix, and flip properties to make some money. A typical buyer of a foreclosure tends to be a seasoned real estate investor, but some first-time buyers could consider a foreclosure as their first real estate purchase.

Benefits Of A Foreclosure For First-Time Buyers

Save Money: The biggest benefit of purchasing a foreclosure is the possibility to pay a lot less than you would for a comparable home in a regular sale. If you have some financial flexibility (meaning a sizable down payment), very healthy credit, a high tolerance for risk (meaning all of your eggs are not in this one transaction basket), and the timeline/patience to wait for the right deal, you could secure a foreclosure at a bargain price.

Build Your Dream Home: Because many homes in foreclosure will have been vacant or not been maintained for a long period of time, they are most often in some state of disrepair. Foreclosures are sold “as-is”. They may have been without water, electricity, and gas and been exposed to environmental elements for at least as long as the foreclosure proceedings have been going on. But if you are willing to take on the labour and the financial cost of significant repairs and renovations, a foreclosure is a great opportunity to completely customize a property and build your dream home. 

Risks Of A Foreclosure For First-Time Buyers

As-Is Condition: The “as-is” condition mentioned above is also one of the biggest risks when buying a foreclosure. These homes have usually been neglected and could have significant cosmetic and structural deficiencies. Loans are often contingent on home inspections and always require an appraisal to ensure that the property value exceeds the mortgage amount. Not meeting these requirements will likely mean that your lender will not approve the purchase. And the “as-is” condition may mean that a buyer could be faced with significant and unexpected expenses and repair costs.

Your Lender/Finances: Traditional mortgages are based on the current appraised value of a home. This means that you cannot borrow against a future, anticipated (post renovation) value with a traditional mortgage. There are alternative financing options that can accommodate renovation financing, but they are harder to secure. This means you will need to have cash for renovations and repairs or you may have to live in the home and save over time to make your desired improvements.

A Lot Of Work: The reality is that most of the time foreclosures will be more work than turn-key real estate purchases. First-time home buyers, by their very definition, tend to be inexperienced when it comes to matters of home repair, renovations, and maintenance. These are all a lot of work! But for home buyers willing to put in the sweat equity, this is a manageable risk.

Inexperience: Navigating real estate purchases is never easy, and foreclosures add layers of complexities that can be trying for even experienced buyers and real estate investors. There are many points at which a foreclosure purchase can go sideways with collapsing deals and unanticipated expenses effectively eliminating the cost savings potential of these transactions, The best way to avoid these costly mistakes is to work with a Realtor® with a comprehensive understanding of the real estate market in your area and extensive experience navigating the complex process of purchasing foreclosures.

Explore The Opportunities In Foreclosures With A Calgary Realtor®

There are opportunities for all home buyers to benefit by purchasing a foreclosure in Calgary. But first-time home buyers need to consider some additional complexities before deciding if buying a foreclosure is the right decision for them. If you are a first-time home buyer, connect with an experienced Realtor® to explore the opportunities for purchasing a foreclosure and all of your options to find the perfect first home for you. A Realtor® can help you understand the Calgary real estate market, connect you with the right resources to explore your financing options, and set you up with the tools to begin your home search. 

The team at Mel Star are savvy and accomplished real estate professionals. With over four decades of helping Calgarians buy and sell properties, we have become Calgary’s choice for navigating the complexities of purchasing foreclosures. If you are interested in learning more about purchasing foreclosures, seeking investment opportunities, are looking to sell your home, or to buy your first home or your forever home, we would love to connect with you. Let’s chat about your goals for buying or selling and work together to devise a strategy to achieve those goals. Contact the Mel Star team by calling 1-403-861-9944 or filling out the online contact form.