4 in every 5 Americans consider buying a home a significant milestone in their lives. However, due to the rising home prices reaching a record high of $425K, home sales are declining across the US. But, wait, there’s a silver lining.
You can buy a foreclosed home as these homes sell around 20-30% lower than traditional homes. Moreover, with 322,103 properties around the US, opportunities are abundant. Let’s dive deeper to better understand how to buy a foreclosed home in 2025!
What Is a Foreclosure and What Are Foreclosed Homes?
Foreclosure occurs when a lender takes ownership of a property through legal means. This is primarily due to homeowner’s inability to repay the loan amount. The lender then sells the property to recover the remaining debt.
Foreclosed homes are typically sold below their market value. This is because the lenders just want to recover the unpaid amount on their mortgage as quickly as possible. As a result, the selling price is usually a fraction of the property’s original value.
What Are the Types of Foreclosed Homes?
1. Short Sale
A short sale occurs when banks allow homeowners to sell a property for less than the remaining mortgage balance to repay the debt. This helps the banks to quickly sell the property and recover their funds back.
2. Auctioned
These are the properties sold to the highest bidder at auctions. However, this type of sale is usually done in cash. Thus, the bidders are required to have cash ready with them to purchase the home.
3. REO
Real estate-owned (REO) homes are properties that a bank or lending company has purchased to later resell at a higher price. This is usually done through real estate agents.
Is It Good to Buy a Foreclosed Home?
Below are a few pros and cons of buying a house in foreclosure:
| Pros ✅ | Cons ❌ |
| 1. Foreclosed homes are often sold at discounted prices, which provides an opportunity to save. | 1. Foreclosure properties may come with an additional cost and repairs as they are sold as-is. |
| 2. Buying at a lower price may allow for equity growth, especially if property values rise. | 2. The foreclosure process can lead to unpredictable closing dates and potential delays. |
| 3. You can sell houses in foreclosure later at an increased price. | 3. With low prices, these homes generally sell fast, which leads to high competition. |
What Are the Steps to Buy a Foreclosed Home?
Step 1: Set Your Budget & Get Pre-Approved
A mortgage is a key part of buying a home, and getting pre-approved makes the process smoother. It helps you budget better and gives you a clear idea of how much you can afford to spend. Besides this, there are a few other alternatives too.
- 203(k) Loans: The 203(k) loans help home buyers roll the costs of both purchasing a home and renovating it into one mortgage. Additionally, a 203(k) requires just a 3.5% down payment if you have a credit score of 580 or above.
- HomePath ReadyBuyer: HomePath is a Fannie Mae combo cost assistance program for the repossessed properties. Specifically, first-time buyers can get up to 3% of the house price in assistance for a HomePath property.
Step 2: Research Options in the Market
- Government Agencies: The government agencies, like the Department of Housing and Urban Development, Fannie Mae, and Freddie Mac, also sell foreclosed homes. These platforms usually provide details like pricing, auction dates, and eligibility requirements.
- Bank & Lender Websites: These are the properties that are repossessed by the bank and listed on their websites. Moreover, buying directly from a bank ensures transparency and fewer complications, as the bank already owns the property.
- Courthouse Auctions: Some properties are auctioned at courthouses, where buyers can bid on foreclosed homes. Additionally, details of these auctions are often available on the county office records, which can easily be accessed online or in person.
- Real Estate Agents: Many realtors have access to Multiple Listing Services (MLS) that include foreclosure listings. Plus, a real estate agent can help you navigate through the complex paperwork and negotiate better deals before making an offer.
- Local Newspapers: Public foreclosure notices are often posted in the legal section of newspapers. Here, you can find the details about upcoming property auctions, court sales, and contact information for inquiries.
Step 3: Get an Appraisal and Inspection
Home inspection and appraisal are two important things to consider while buying homes in foreclosure. Appraisals help you determine a property’s value and whether it’s aligned with the fair market value, conditions, and local housing trends.
On the other hand, a home inspection is a comprehensive evaluation of the property’s physical condition, including its structural elements, systems, and potential issues. It helps identify any repairs, defects, or safety concerns that might require attention.
» House Value Calculator: You can use Houzeo’s online tool to estimate any property’s market value.
Step 4: Close the Deal & Take Ownership
Check out your home appraisal and inspection report, then decide whether a home is right for you or not. Reaching out to your mortgage lender with documents such as income proof, Identity proof, and credit history is important in this loan process.
This is especially important if you have the financial means or experience to carry out any necessary renovations. Lastly, your real estate agent is there to guide you through the process of submitting an offer and preparing for the closing procedure.
Should I Buy a Foreclosed Home?
Foreclosed homes offer a rare chance to buy a property at a discount, which attracts budget-conscious buyers and investors. However, the process can sometimes be complicated, but the savings and potential equity growth make it worth considering.
To buy a foreclosed home, start by setting your budget, then do a thorough research with banks, government agencies, and auction houses, make sure to get it appraised and inspected. Finally, work with your real estate agent and lender to close the deal.
Now that you understand how to buy a foreclosed home, start your search today with Houzeo and unlock unbeatable savings!
