Pros and Cons of Buying a Foreclosed Property in the Philippines
The Filipino dream is all about homeownership. However, the high price of properties for sale in the Philippines is a limiting factor for the people to realize their dream.
Economic analysts say that buying a foreclosed property could be the only way for the Filipinos to acquire their own property. What these analysts did not disclose are the drawbacks of participating in the foreclosure market.p>Definitely, there are certain advantages to buying a house and lot or condo running for foreclosure.
It is best to look at the advantages and disadvantages of buying a foreclosed property to determine whether it is for you or not. For instance, there are compromises that you are 100% okay with.
Whatever it may be, there is value in knowing what options are available for you. So here it goes.
What is a foreclosed property?
Before we talk about the benefits and drawbacks associated with buying foreclosures, let’s learn what foreclosure is all about.
Foreclosure is a legal process that involves taking the possession and control of a mortgaged property when the mortgagor fails to repay the mortgage payments. The property is often used as the collateral for recovering the remaining balance when the asset is sold.
A foreclosed property, therefore, is a real estate that mortgage lenders sell for paying off the defaulted mortgage loan.
Pros and cons of buying a foreclosed property
Foreclosed properties are sold at “bargain” rates.
A foreclosed property is categorized as a non-performing asset (NPA).
To recover the incurred losses and to stop any additional loss in may incur, banks and other mortgage lenders such as Pag-IBIG and property developers themselves choose to sell these properties at lower prices. In fact, the majority of the properties are sold below their market values.
Mortgage lenders also offer deep discounts and special rates and terms as a form of buyer incentives. Pag-IBIG, for instance, can go as high as 30% discounts for cash buyers.
Through these incentives, they are able to dispose of distressed assets quickly.
Foreclosed properties have low monthly repayments.
Even if you cannot pay for the property in cash, the monthly repayments should be the least of your worry. Repayments are cheap.
Further, the tenor of the new mortgage loan can be up to 15 years. So you can devote your disposable income to improving the property. By the time you decide to sell it, there are upgrades that allow you to command a higher price.
Foreclosed property titles are consolidated immediately.
Upon letting the mortgage lender of your intention to buy the property and submitting the necessary requirements, the property title can be immediately transferred to your name.
For you, it means the quick assumption of ownership. You may now list it as one of your assets.
Another good thing about foreclosed properties for consolidation is the taxes and utilities are updated. The lender takes care of it so that there would not be any encumbrances to the property for disposal.
Foreclosed properties can be an investment.
If you are not going to use the property after some renovations here and there, you might as well earn from it. Flipping is the right term here, which is a way to gain profits from buying and modifying the property.
You may also choose to live in the property for a while until the property value appreciates. The foreclosed property has already depreciated in value, so you need to wait. With this, you can expect a higher return on your investment that is already guaranteed.
The buying process is transparent and straightforward.
All the details are laid out for your perusal and scrutiny. The mortgage lenders will tell you what you need to know about the foreclosed property’s conditions. They will also tell you of the necessary legal documents to prepare and where to secure them.
Some foreclosed properties have legal liabilities.
Speaking of the legality of the sale, some properties have pending court cases. The most common is the existence of illegal occupants or informal settlers. This can halt the process and even compel you from possessing the property.
Buyers must exert an extra effort in doing due diligence.
This is also the reason why you need to be more careful. You need to ask lots of questions regarding the property. With this also, you cannot skip inspection as part of your responsibility.
Inspect the documents that will be handed to you and the property to know what you have to deal with in case you pursue the purchase. Whatever your decision may be, however, never underestimate the legal liabilities attached to buying a foreclosed property.
Foreclosed properties are on “as is, where is” basis.
Property inspection is easier because you’d know where to find the property exactly. The downside here is the lack of flexibility in choosing the exact location of the property that you want to buy.
Buyers face a tight competition.
Considering the low prices of the foreclosed properties, expect to see competitors for the same property. You will find yourself competing with individuals and group buyers more so when the foreclosed property is deemed valuable.
It is a lucrative business; that’s why real estate brokers are into buying and selling properties like these.
More tips in buying a foreclosed property
Consider these tips also.
1. Obtain an estimate of how much the total cost of cleaning the title and renovating the property would be before letting the mortgage lender of your intention to buy (or bid).
2. Skip properties that are into pre-foreclosure because the priority is the owner who may do everything to avoid the foreclosure of the property.
3. If possible, pay the foreclosed property in cash to obtain the highest discount attainable.
4. Know your taxes and fees so you’d know how much to prepare upfront financially.
5. Learn the buying process that usually involves an auction wherein you have to prepare a 10% bid bond.
6. Have available cash before you go or participate in an auction since this helps in negotiating a better price for the property.
Listed above are the pros and cons of buying a foreclosed property to guide you in your decision-making. A foreclose property is not for everyone, but if you think it’s for you, then go ahead.