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Buying a foreclosure home seems tempting, no? You swoop in, catch a house on sale, probably help out someone who’s underwater, and enjoy your discounted living forevermore.
We bought a foreclosure – a HUD home, specifically, which is a foreclosure on a home that had an FHA loan.
We are here to report that while buying a foreclosure home is a big opportunity, it is not all peaches and cream. There’s a lot to consider before jumping in.
New to foreclosures? Basically, it’s a house that someone lost because they didn’t pay their mortgage. For more detailed and proper explanation, check out Investopedia’s thorough definition of a foreclosure.
Here is what you should know before buying a foreclosure.
The owners likely didn’t manage it well.
Think about it. If you couldn’t afford your mortgage (for whatever tragic reason), you likely didn’t have the money leftover for repairs.
Even if you did have a few bucks set aside for repairs, you’d take the DIY highway rather than pay a contractor. Therefore, most foreclosures come with a hefty amount of projects done either incorrectly or not at all.
Our house is no exception to this logic.
Seemingly everything we touch comes with an extra step. “Oh let’s change out that light fixture!” Nope. Not so fast. You’ll be rewiring and installing an electrical box before you hook up your cute chandelier.
Or, “hey, let’s demo that wall to reframe the closet!” Not so easy. There’s a live wire that was never in the wall in your way.
If you’re going to buy a foreclosure, brace yourself for some very poor initial conditions.
You will be repairing the repairs
Here’s an example of “repairing the repairs.” This one was in our face as we worked on our living room makeover.
The previous owners had clearly attempted to update our living room. Nice, right?
Except when they did the taping over the sheetrock, they did it wrong.
When you use joint tape, you need to put compound, then tape, then more compound. “Muck, tape, muck,” as my dad says.
They forgot muck #1.
Consequently, much of the joint tape was falling from the walls, making it horrifically obvious as to where all the joints were in the sheetrock.
Derek took the reins on the tedious task of cutting out the bad tape spots and re-taping them.
This is just one example of the time-consuming joy of “repairing the repairs” that comes with owning a foreclosure.
Other fun adventures we’ve encountered include sketchy electrical, “creative” framing, horrendous paint jobs, and lazy trim work.
These continuing repairs were not a dealbreaker for us, but some people might find this to be not worth it.
They come with the most incredible paint colors.
Ever heard of the “oops” rack?
For whatever reason, foreclosed homes tend to boast the most ridiculous paint colors.
I can forgive the obvious children’s rooms, with neon blue or purple and pink alternating stripes.
But when the living room is orange and teal, we need to have a come-to-Jesus talk!
Just know that if you’re buying a foreclosure home, you need to equip yourself with x-ray vision to picture a room in a different color.
The repairs run deep
Buying a foreclosure home is massively tempting for people who want to save money on their purchase and build quick equity.
It’s a great tactic, and one that we have employed.
However, it’s easy to skip on an important calculation: the cost of continuing repairs.
Folks seem to count the repairs they can see – whether it’s a roof, paint, or electric – but can easily miss the repairs that you can’t see.
Repairing a foreclosure is like pulling a thread on a sweater. You think, “Oh lemme just fix this one little bit,” and before you know it, you’ve got a hole the size of Montana in your lovely cashmere.
For example, we decided to repair our first floor bathroom. Great, nice, let’s turn off the plumbing and take out the vanity.
Two minutes later, we discovered the vanity had been leaking for years, and into our new basement bathroom for the last couple of months! Noooooooooo!!!!!
The next step in our first floor bathroom renovation was to cut out a giant hole in our basement bathroom ceiling.
Do you see? There’s always more to it than meets the eye.
They aren’t as cheap as you think
Our initial down payment for our home, with our FHA 203k loan purchase, was a humble $10k. We’d had 7x that saved up, but had to use an FHA loan unless we wanted to purchase in cash. (Our home was in such bad shape that it was uninsurable.).
It might seem like we “bought a house for 10 grand! Wow!” But I am here to report that we used every penny saved up from our down payment and more to finish repairing the house. We have easily spent $40k on plumbing alone since 2016, plus another $50k on everything else, plus the cost of our 203k. We’re well over $100k on repairs. Thankfully our deal is still 1,000% worth it – but you need to do your math carefully.
If you’re buying a foreclosure home, be sure to budget for the worst case scenario. It’s very possible you’ll encounter it.
Which brings me to my next point…
If you can’t turn it on, assume it is 100% broken
Yep. 100% broken.
Example: We could not test the water in our house before we purchased it. No water pressure, no service from the curb, nada.
No problem, either – we just assumed that we would be replacing every inch of plumbing in the house and added it to our calculations when bidding.
Looking back – we were right. We’ve replaced 2 kitchens and 3 bathrooms, not to mention ¾ of the heating pipes in the basement.
Other than our trusty cast iron radiators, I would say 90% of the plumbing in our home is brand new.
It’s wonderful now, since everything is new. We’ve also acquired a friendship with our plumber, for whose family we have single-handedly financed 2 trips to Disney World.
You’ll learn how a house works
By getting our hands dirty on our house, we’ve learned so much about how it works.
Jumping in the deep end of home ownership and renovations has really taught us about the inner workings of a residential property.
We’re better equipped to take care of this one, and furthermore better equipped to assess future homes, should we ever decide to move.
Owning a home is hard to understand until you do it – buying a foreclosure home will expedite your education of how a home works!
The “before” pictures will pack a punch
Don’t forget to take lots of pictures! The best part about an ugly “before” picture is that you don’t have to try too hard on the “after.”
I mean, take a look at our basement bathroom. The before pic is like a horror film! But heyyyyyy doesn’t that after look stunning?
It’s not because the “after” is anything special. It’s because the “before” is so horrendous!!
Enjoy your foreclosure “before” pictures. They’ll make you look like a genius. And eventually make you cackle.
The little things add up
It may only look like a weird light fixture, a giant hole in a closet, a paint spill in the corner – but the seemingly minor gross ugly poor repairs will add up.
An upside-down outlet here, a crooked door there – this stuff adds up! And it can make a person crazy – and make your house feel… crappy.
While the compounded annoying quirks of our foreclosure get under my skin, they do generally provide fuel for the fire that instigates most of our renovations. It could be worse.
It is STUPID AMOUNTS OF FUN to fix
YEP! I don’t believe I’ve ever had more fun than the days I’ve spent working on our house.
Derek and I marvel regularly at how enjoyable and satisfying it is to wake up on a weekend and improve our home.
We’ve gotten to spend extra time with family, too, especially my dad – and that, my friends, is like those old Mastercard commercials – priceless.
So if you’re buying a foreclosure, crank up the music, throw open the windows, and get to work – if you choose, it can be a brilliantly fun time!
All in all, buying a foreclosure home has more to it than meets the eye.
You’ll encounter previous mismanagement, repairs that need repairing, incredible paint jobs, and hidden costs.
But there is much to be enjoyed as well, what with impressive before/after pictures, built-in house education, and super amounts of fun.
We hope you have a successful home purchase, foreclosure or not!
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