How To Buy a Foreclosed Home
Home prices have soared over the last few years, and they’re expected to continue rising slowly over the course of 2025. These increased costs can make the savings that come with buying a foreclosed home very attractive. Below, we’ll walk you through the pros and cons of buying a foreclosed property — then we’ll jump into how to buy a foreclosed home, step by step.
How to find foreclosed homes for sale
You can find foreclosed properties advertised in many places, from national websites to your local bank branch. These homes may not always be available in the neighborhoods you’re eyeing, so be prepared to monitor the market for a while. A real estate agent can help you in your search.
As of March 2025, foreclosures were up 11% from the previous quarter. If you’re looking to buy now, this could mean more opportunities to find foreclosed homes for sale.
Where to find foreclosed homes
Luckily for those who don’t know how to find foreclosure homes for sale, it’s as easy as picking up a local print publication or searching on Multiple Listing Service (MLS) sites. You may have to use a search filter for foreclosures — here are a few popular sites:
If you’re unfamiliar with the different types of listings you could come across, jump down to our guide to the different types of foreclosure listings.
How to buy foreclosed homes: 5 steps
1. Hire an expert real estate agent
Once you’ve looked at some listings and determined that a foreclosed home is what you want, it’s time to reach out to a real estate agent. A local real estate agent who specializes in this niche type of home sale in your area is going to be your best bet.
2. Get a mortgage preapproval
There’s no specific type of mortgage loan you have to use to buy a foreclosed home, but a mortgage preapproval from a lender of your choosing is usually a necessity. It lets owners know that you’re capable of purchasing the property. A preapproval also provides you with a stronger negotiating position when it comes time to find the best mortgage rate and finalize your loan.
3. Submit a competitive offer
Work with your agent to submit a competitive offer for a foreclosed home. Remember that you may have some tough competition and that it can take a long time to close on the deal. One tactic is to submit multiple offers on foreclosed properties to better your odds of one being approved.
Another strategy is to make a cash offer (which is more enticing to sellers), and then finance the purchase after the fact. Fannie Mae allows homeowners to do this with a conventional loan within six months of the sale. You can even take cash out if you meet the usual conventional cash-out refinance requirements.
4. Get an inspection and appraisal
Because the property may not have been well taken care of, it’s strongly recommended that you get a home inspection. A professional inspector will flag any problems with the home’s structure or major appliance systems. If there are large issues that would be expensive to fix, you’ll have to weigh the cost of repairs against the savings you’re getting from purchasing a foreclosed home.
A home appraisal will provide you and your future lender with a professional estimate of the home’s value.
As we discussed earlier, not all foreclosed homes are sold the same way. It’s important to realize that some methods typically leave time for an inspection while others — like buying at auction — don’t. One solution is to purchase with what’s called an “inspection contingency” in your contract. An inspection contingency allows you to get out of the sale if you put a home under contract that subsequently fails an inspection.
5. Purchase the home
The mortgage closing process often takes a while — usually up to 60 days if a mortgage is involved. For a government-owned foreclosure, you’ll typically have a closing date set within 30 days of your offer. Respond quickly to any paperwork requests to facilitate the process on your end.
Your ability to back out of buying a foreclosed home may depend on how far into the purchasing process you are. Generally, you’re able to back out of buying real estate if you haven’t signed the purchase and/or financing contract that would put the title in your name. If you do back out, you could lose any earnest money you originally put down toward your purchase offer.
The answer is yes — but only under very specific circumstances. If you’re holding up your end of the contract as a buyer and the reason the seller wants to back out isn’t written into the contract, they likely won’t be able to pull out successfully.
What is the cheapest way to buy a foreclosed home?
If you’re interested in a foreclosed home because finances are tight, there are several programs that could help you. Typically, these programs are going to come with lower monthly payments than a conventional loan.
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Government-backed loans typically have lower qualification requirements:
- FHA loans: Purchase loans backed by the Federal Housing Administration (FHA) have low down payment and flexible credit requirements. If you know you’re going to choose a home that’s a fixer-upper, you may also want to look into FHA 203(k) loans, which allow you to use a single loan for purchasing and rehabbing a property.
- VA loans: Loans backed by the U.S. Department of Veterans Affairs (VA) are a great deal if your military service allows you to qualify. Just keep in mind that any home you purchase must meet the VA’s minimum property requirements, which vary by location and ensure that a home is safe and sanitary.
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First-time homebuyer programs, including:
- Fannie Mae’s HomePath Ready Buyer™ program. HomePath deals with houses that went into foreclosure when homeowners defaulted on a conventional loan. The program allows buyers who complete a homebuyer education course to receive up to 3% of the home’s price, which can be used toward their closing costs.
Buying a foreclosed home at an auction can help you get a bargain, as most foreclosures sold at auction typically sell for 20% to 30% lower than their market value. Just know that you’re typically not going to be able to use a traditional mortgage if you’re buying a home at an auction.
That’s both because conventional lenders view the foreclosed homes sold at auctions as risky investments, and also because it takes too much time to close on a traditional home loan (usually over 40 days). However, there are some strategies to get around this problem, which we cover in the section below.
Understanding the different types of foreclosure sales
Here are the types of homes you’ll come across as you sift through foreclosed home listings:
Preforeclosure
Some owners will sell their homes while in “preforeclosure” — that is, before their mortgage lender can start the official foreclosure process. Owners generally have three to six months from their first missed payment to work out a solution. In many cases, selling the home is their best option to avoid foreclosure.
How to find them: Local courthouses often maintain lists of properties whose mortgages have gone into default. You can also try a website like Foreclosure.com, which allows you to filter search results so that you only see listings for homes in preforeclosure.
Short sale
In a short sale, the lender and the homeowner agree to put the home on the market for less than the remaining mortgage balance — all in an effort to avoid foreclosure. A short sale also takes place during the preforeclosure period, in other words.
However, what differs from the preforeclosure listings we mentioned above is the role of the lender. A lender doesn’t have to agree to a typical preforeclosure sale, but it does have to sign off on a short sale. That’s because if you sell “short,” you aren’t receiving all the money you need to pay back what you owe the lender.
How to find them: Real estate websites and other listing services may let you filter by “short sale” when searching. If not, you can keep an eye out for telltale signs in the listings, like the phrase “third-party review required.” This means that the transactions will be a short sale, but the lender has to approve the sale once an offer is made.
Auction foreclosures
If a homeowner isn’t able to catch up on payments or sell their home, the lender can foreclose on the property and send it to public auction. Many foreclosures are auctioned off at courthouse auctions, which are run by local law enforcement. The highest bidder gets the deed.
Notice of auctions for foreclosed homes — including when, where and what’s being sold — are typically announced four to six weeks before the event in local newspapers and on the county sheriff’s website.
How to find them: Search for “sheriff’s sales” to find these auctions in your area.
Bank-owned foreclosures
When homes don’t sell at auction, they can become real estate-owned (REO) properties and the bank holds the keys. Most banks don’t want to fuss with managing properties that may be located all over the country, and are typically willing to sell at large discounts. Here’s how to negotiate home prices.
How to find them: Contact the bank or institution whose foreclosures you may be interested in. You may also want to try online marketplaces like RealtyTrac that specialize in foreclosed real estate listings.
Government-owned foreclosures
When a government agency guarantees a loan, it’s obligated to pay the lender if the borrower doesn’t and there’s a foreclosure. Several federal agencies can hold the keys to foreclosed homes, including the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA).
You can only buy a government-owned foreclosure with the help of a real estate agent, servicing representative or mortgage broker — a real estate agent with additional credentials.
How to find them: Some government agencies maintain lists of approved brokers. You can find HUD’s list of registered brokers online.
Pros and cons of buying foreclosed homes
Pros
- You could save a lot of money. A major perk of buying a foreclosed property is the savings. The lender is usually strongly motivated to sell the home, giving the buyer a strong negotiating position.
- You’ll have a great opportunity to customize the home. If the house were perfectly move-in ready, spending money on renovations can feel wasteful. But if you already have to make some repairs, spending a little extra money to get exactly what you want may be worth it.
- You could turn a profit. Even if you’re not a professional house flipper, selling a foreclosed property that you fixed up and lived in for a while can be a smart financial move. The average return on investment for house flippers was 28% as of the fall of 2024, according to real estate investment software company REsimpli.
Cons
- You may not be able to move quickly. Purchasing foreclosed properties generally involves more paperwork. Plus, the average foreclosure process during the first quarter of 2025 took nearly two years, according to ATTOM Data Solutions. If you end up interested in a home that hasn’t completed the foreclosure process, you could be in for months of waiting before you can actually purchase it.
- Your home may have hidden debts. Foreclosed homes can have outstanding taxes or unpaid liens on them that new owners must pay; the exception to this rule is an REO home. A title search should reveal if there are any issues, and title insurance will protect you from any new ones.
- You’ll have plenty of repairs to tackle. Foreclosed homes are sold as-is and often aren’t in great shape. You can’t negotiate and ask the seller to make any repairs. Because the house is a foreclosure, the former owners had major financial trouble and may not have maintained the property. You may find damage, trash, mold, pests and weeds.
- You may be competing with many buyers. Other homebuyers, professional home flippers and real estate investors can all smell a good deal. You might have some stiff competition.X You could see higher monthly payments if you use a renovation loan. While renovation loans (like the FHA 203(k) mortgage) fill an important gap for borrowers who want to avoid the complications of managing multiple home loans, they usually come with higher interest rates and mortgage insurance obligations.
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