- When a homeowner defaults on their home loan, the home loan is cancelled and the house is repossessed by the bank.
- Repossessed homes can be purchased at favourable prices, as the bank is looking to offload the home and recoup its cost.
- Those who intend to purchase a repossessed home need to take a few factors into account, such as that the house might be occupied by tenants or might be in poor condition.
Properties can be expensive investments, so any opportunity to get a bargain is one you should consider taking. Repossessed houses are an example, and here are some factors you should take into account before purchasing one.
Note: You can use our Bond Calculator to determine how much you are likely to pay on a home loan. This is useful information to have before purchasing a property.
The pros and cons of buying a repossessed house
- The bank will be looking to offload the property, not make a profit, so you can get it at a better price.
- Home loans are more likely to be granted, including 100% home loans.
- You don’t pay transfer duty.
- The bank will need to ensure that municipal accounts are paid, so you won’t have to worry about receiving a pile of bills.
- The property may be in poor condition, although this is a risk with any property you purchase.
- The transfer of property process may take longer.
- The house may still be occupied. It’s not easy to evict tenants as they are protected by law for the terms of their lease agreement. Seek legal advice before attempting to do so.
- The voetstoots clause. Repossessed homes are sold voetstoots, meaning they are sold “as is”. The onus is on you to identify and fix any defects.
- House viewings are more difficult. You generally won’t be able to access the home before purchasing it unless it has been vacated by its previous owner.
What to look out for when buying a repossessed home
Buying a repossessed home does require some additional scrutiny from the buyer. Here’s what you should be aware of.
- Location. Don’t allow the temptation of a good bargain to draw you into buying a repossessed home in a bad location. Location is key with any property, including repossessed ones.
- Market value. Look into market value in the area and consult an estate agent. This is especially important if you can’t view the house beforehand.
- Repairs and maintenance. If the previous owner couldn’t afford monthly repayments, they may not have kept up with repairs either. The property may need a fix-up and renovation. Factor the potential cost of this into the cost of the property as a whole.
How do you purchase a repossessed house?
- Repossessed houses are usually put up for auction by the bank. This is known as a Sale in Execution.
- You could also purchase the home directly from the borrower, who may be attempting to sell the home before the bank claims it. This is known as a distressed sale.
- If the bank puts the property up for auction but the price is not met, the bank buys back the property and it becomes a Property in Possession.
In summation, purchasing a repossessed home has some risks and may require some work on the part of the homebuyer, but flipping houses (buying a rundown property at a bargain price and fixing it up before selling) is a potentially profitable endeavour employed by many property investors.
Getting a home loan on a repossessed home
If you decide to go ahead with the purchase, bear in mind that ooba Home Loans, South Africa’s leading home loan comparison service, can help secure the home loan by submitting your application to multiple banks.
We can secure you lower interest rates by allowing you to compare deals offered by the bank, so you’ll not only get a better price on the home but more affordable interest rates as well.
We can also prequalify you, which will give you an idea of what you can afford on a home loan. This makes the house hunt easier as you’ll be able to focus on homes within your price range.
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