If you’ve been searching for an investment property, you’ve probably seen some homes in foreclosure. But what you might not understand is exactly what that means and how it affects the local real estate market. Foreclosure is a process where the lender takes back ownership of a home from the borrower, when the borrower is behind and no longer making payments on the home.
Common Reasons for Foreclosure
The reasons for foreclosure vary by situation, but there are some common ones that are seen more often than others. Some of the common reasons for a home going into foreclosure are:
Divorce. Divorce changes lives and financial situations. When the household splits, the home can easily get lost in the battle and payments can get behind.
Illness or medical bills. Both unexpected illnesses and large medical bills can often cause foreclosure. Medical bills can cost thousands of dollars, and they can easily take a toll on a person’s finances if they don’t have an emergency fund.
Loss of a job. Again, it’s the unexpected financial problems that take people by surprise and lead to them losing their homes. Most people don’t plan for job loss and don’t have the backup funds to keep their house payments current should it happen.
Death. A death in the family is devastating, and the financial results can be heartbreaking. Death can lead to foreclosure in a number of ways; for example, if the main provider for the family passes away, income will drop substantially. In other scenarios, a death in the family can lead to arguments over property and money, and a home can get lost in the chaos.
Effects on the Local Market
While foreclosure mainly affects the borrower and the lender in the situation, it can have an effect on surrounding properties as well. Foreclosures can affect the perceived value of the neighborhood, and multiple foreclosed homes in a neighborhood can understandably lead new homebuyers to think twice about buying a home in the area. Also, if the homes in foreclosure look unkempt and neglected, it can negatively impact the value of the neighborhood as a whole.
5 States With the Most Homes in Foreclosure
Multiple foreclosures in an area can tell homebuyers a lot about the neighborhood and the financial situation of the area. Let’s look at 5 states that currently have the highest foreclosure rates (filed in the first half of 2019)
- #5. Illinois: 0.38%
- #4. Florida: 0.39%
- #3. Maryland: 0.43%
- #2. Delaware 0.46%
- #1. New Jersey: 0.54%
Buying a Foreclosed Home
You may be wondering, who would want to buy a foreclosed home? While the circumstances that put a home in foreclosure aren’t always the most favorable, there are still some benefits for new homebuyers.
Foreclosed homes are often sold at prices lower than market value. If the home is still in pre-foreclosure, the homeowner may want to sell the home as-is for a lower price to avoid going into foreclosure. These types of sellers are also often in a hurry to get the home off their hands, speeding up the process. While some foreclosed homes are neglected toward the end of ownership, not all are-some may only need a few minor repairs or none at all.
If you’re interested in purchasing a foreclosed home, start the process by contacting an agent who specializes in foreclosures. The homebuying process differs just a bit, and it pays to have someone in your corner who has the right experience.
Unfortunately, foreclosure happens, it’s often unexpected and it does have an overall effect on the value of a neighborhood. However, there are some benefits to buying a home in foreclosure. Weigh the pros and cons, and work with an agent who has experience in foreclosed homes to see if buying one is the right option for you. Browse foreclosures near you here.