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Is buying a repossessed house worth it? The pros & cons

Properties can be expensive investments, and repossessed homes provide an opportunity to purchase a home at a favourable price.

Repossessed Houses

Article summary

  • 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.

The pros and cons of buying a repossessed house

Advantages

  • The bank will be looking to offload the property, 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.

Disadvantages

  • The property may be in poor condition, although this is a risk with any property you purchase.

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.

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.

  • 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 renovations.
  • 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 identify and fix any defects.
  • Municipal services and utility costs may not have been covered. There may be a pile of bills to pay when you take over the house, to the point that you may not have some services available when you first move in.

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 also offer a range of tools that can make the home buying process easier. Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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