i also don’t really get “foreclosed” i’m guessing it means they’ve missed mortgage payments?
Edit: thanks everyone, lots of good info here!
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#ELI5
You buy a house that costs $100,000.
The bank gives you a loan for $100,000, to buy the house.
You make payments for a few years.
For whatever reason, after a few years, you can’t pay the bank back anymore.
But you still owe $80,000 on the loan.
The bank says, “Fine, you can’t pay us back anymore, so we’re taking the house. It’s ours now, it belongs to the bank”.
That’s foreclosure.
But now the bank owns a house, and banks don’t really want to own houses. So what do they do?
The bank says, “Okay, we don’t want to own this house, so we’re going to sell it. As long as we get $80,000, we’re happy”.
It doesn’t matter if the house is worth $100,000. As long as the bank gets the money that it is owed, they’re happy to be rid of the house.
So some people will look for houses which have been foreclosed. It’s a lot cheaper to pay $80,000 for a house that is really worth $100,000. Buyers save a good chunk of money this way!
But the process isn’t easy all the time. Lots of red tape, lots of paperwork, all slow down the process. If you need to move NOW, you can’t afford to wait for this red tape to be handled.
Plus … when people sell houses normally, they clean up the place. They want it looking nice, so it sells for a lot of money. They fix up things that are broken, so it sells for a lot of money.
People who can’t afford to pay their bank loans anymore, are not going to the trouble of fixing up their homes for sale. They may be hurting financially, preventing them from making even basic repairs.
So foreclosed homes are often in disrepair, needing fixes, needing upgrades. You don’t often see a foreclosed home in perfect condition.
But the people willing to buy these homes, which need repair, don’t mind, because they’re saving a lot of money in the first place.
Does this help?
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