Inexperienced buyers can quickly get in over their heads.
“I honestly can’t see a first-time homebuyer going to auction to acquire a foreclosure property,” says Lane. “Buying at auction takes a high level of skill, and you’re there with investors who know what they are doing. You don’t just show up with a bucket of cash and outbid the others. It’s a process. You have to do your research and know what lies ahead, and you have to know the rules of the auction.” 4. You could inherit the previous owner’s debt Remember, the previous owner must have been strapped. What house-related bills besides the mortgage might not be paid up? Can you afford to take them on? “The bank might require the buyer to pay for any debt connected to the home,” Lane warns. “Take the time to understand the financial burdens you’re assuming above and beyond your mortgage obligation. You could be looking at significant sums owed for property taxes, construction loans, or home equity lines of credit. Also for utility, sewer, and trash obligations, and homeowners’ association liens.” 5. Financing can be diffi e difficult or impossible Some lenders just plain will not offer mortgages for distressed properties, says Lane. And those that do might do it grudgingly. Part of the problem is that the home might need so much repair, it can’t pass an inspection, she says. That means you probably won’t be able to use FHA, Veteran’s Administration, or conventional financing. (About half of first-time homebuyers rely on low-down-payment FHA, or Federal Housing Administration, loans.) That can amount to a “three strikes, you’re out” situation. The appraisal can be a problem too. Most mortgages will be limited by the appraised value, and the condition of these homes
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