Edited by Samuel MountjoyWhat to Know About Buying a Foreclosed Home
Quick Answer
Buying a foreclosed home might make sense if:
- The home meets your criteria
- You're comfortable assuming more risk
- You have cash on hand or can qualify for a mortgage
Buying a foreclosed home could lead to big savings since most are priced below market value. As of November 2025, the median sales price in the U.S. was $409,200, according to the National Association of Realtors (NAR), and home prices are expected to grow about 2% to 3% in 2026. Meanwhile, inventory levels are up roughly 20% since early 2025.
Focusing on foreclosed homes might get you a great property at a lower-than-average price, but increased inventory and falling mortgage rates could cause more buyers to flood the market. Here are some important things to consider.
What Is a Foreclosed Home?
Foreclosure happens when a homeowner fails to repay their home loan as promised. If you default on your mortgage, the lender can take possession of the property since the home serves as collateral on the loan. The process typically begins once the account is 120 days past due.
After seizing the property, the lender will sell the home in an effort to recover their losses—and most are motivated to do so quickly. As a result, sale prices on foreclosed homes are often 15% below market value, according to NAR.
How Does Buying a Foreclosed Home Work?
If you're interested in buying foreclosed homes, you can do so in several different ways:
- At auction: Sites like Auction.com and Foreclosure.com allow you to search for upcoming foreclosure auctions in your area. These public events may also be listed on county or city websites. Buyers are typically required to pay in cash and forgo an appraisal or home inspection.
- Through a real estate-owned (REO) sale: If a property fails to sell at public auction, the lender may sell it directly to an interested buyer. These properties might be listed on the lender's website or on real estate sites like Zillow or Trulia.
- Via short sale: A short sale happens before a foreclosure. This is when the lender allows the homeowner to sell the home for less than what they owe on their mortgage. All proceeds of the sale then go to the lender. They might do this if a short sale would cost them less than pursuing a foreclosure. Short sale properties are often listed on real estate sites like Zillow.
Pros and Cons of Buying a Foreclosed Home
Buying a foreclosed home has benefits and drawbacks. Knowing what to expect can help you decide if it's the right option for you.
Pros
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Below-average prices: Again, lenders are usually eager to cut their losses and recoup as much of their investment as possible. That often translates to lower prices, which could increase your buying power and reduce your total loan costs.
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Easy process: You'll likely find foreclosure properties listed on popular real estate websites. You can also ask your real estate agent to include them in your search. That can allow you to avoid public auctions and cash-only sales. If you have a solid down payment, reliable income and healthy credit, you'll probably be able to finance a foreclosure as you would any other property.
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Potentially quicker home sale: It typically takes 45 to 60 days to close on a home sale. Renegotiations or issues with financing could drag out the process, but lenders that own foreclosures usually want to button things up swiftly. Getting preapproved for a mortgage and having your down payment ready can prevent delays.
Cons
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Might require more cash: If you're buying a foreclosed home at auction, you'll likely need to make a cash offer. The upside is that you'll avoid paying interest and mortgage fees—and you'll probably close the deal quickly. But not everyone has hundreds of thousands of dollars on hand.
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More competition: If a foreclosed home comes on the market at a bargain price, interested buyers could pounce. That may require you to up your offer or waive a home inspection contingency to stand out from the competition.
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Potentially riskier: You might get a great deal, but foreclosures are often available as-is. That could cause a financial headache down the road if there are any issues with the home. A home inspection can help you spot potential problems before closing the sale.
Should I Buy a Foreclosed Home?
Buying a foreclosed home isn't for everyone. Here are some important factors to consider before moving forward.
When Buying a Foreclosed Home Could Be a Good Idea
This path might be worth it if:
- The home meets your criteria. Think about what you're looking for in a home when it comes to size, location and amenities. You might find a foreclosed property that ticks those boxes and has a great price.
- You're comfortable assuming more risk. Since most foreclosed homes are available as-is, you may need to make repairs after closing the deal. A home inspection can clarify any issues that need your attention. However, you may have to forgo an inspection if you're buying a foreclosed home at auction.
- The financing is right. Having a cash offer ready could help you stand out in a crowded housing market and negotiate an even better deal. Just be sure not to deplete your savings in the process. If you're financing the purchase, getting preapproved can help you determine how much you can afford.
When Buying a Foreclosed Home Might Not Make Sense
Having said that, you might pass on a foreclosed home if:
- You have a low appetite for risk. Attending an auction and buying a foreclosed home sight unseen might cause more stress than it's worth. Even if you arrange a home inspection, you may still be in store for costly repairs that outweigh the sale price.
- You want to avoid a bidding war. If competition is fierce, you may need to make concessions or up your offer to beat out another buyer. That might not be the type of homebuying experience you want.
- It would strain your finances. Even if you come across a great sale price, clearing out your savings to buy the home could set you up for financial stress.
- You're settling for a home that doesn't meet your criteria. It's rare to find a home that has everything you want, but consider your non-negotiables. A great deal might not be worth it if you have to sacrifice things that are important to you.
How to Buy a Foreclosed Home
If you're open to buying a foreclosed home, you can take the following steps when house hunting.
1. Save for Your Down Payment and Closing Costs
Whether you're buying a foreclosed home or a traditional property, you'll need an adequate down payment to get approved for a mortgage. How much you'll need will depend on the type of mortgage you choose. Putting down 20% is usually seen as the gold standard, but it's possible to qualify with much less.
| Loan Type | Minimum Down Payment |
|---|---|
| Conventional loan | 3% in some cases |
| FHA loan | 3.5% |
| USDA loan | 0% |
| VA loan | 0% |
Just be aware that some government-backed mortgages require mortgage insurance. You can expect the same if you go with a conventional mortgage and make a down payment that's less than 20%.
Also remember to account for closing costs. These are fees, taxes and other expenses you'll have to pay when finalizing a mortgage. Closing costs typically add up to 2% to 5% of the home's purchase price.
2. Get Preapproved for a Mortgage
When getting preapproved, the lender will look at your financial information to see if you'll likely qualify for a mortgage. If so, you'll receive a preapproval letter with your expected loan amount and interest rate. You'll still need to complete a formal mortgage application when the time comes, but preapproval can show you how much you can afford. Once you're preapproved, you can shop around for properties that are within your price range.
Preapproval typically requires a hard credit inquiry. This can lower your credit score by a few points, but the effect is temporary. If you're rate shopping and getting preapproved by multiple lenders, it will count as a single inquiry if you do so within a 14- to 45-day period.
3. Look for Foreclosure Properties
You can start browsing foreclosed homes by:
- Asking your real estate agent to put these properties on their radar
- Searching for auction information on auction sites and county and city websites
- Checking lender websites directly for foreclosure listings
- Looking for foreclosures on real estate listing websites
4. Make an Offer
If you find a foreclosed property you like, you can go ahead and make an offer. Your real estate agent can put in your offer on your behalf and negotiate with the seller. But things will be different if you're buying a foreclosed home at auction. In this case, the home is simply sold as-is to the highest bidder.
Otherwise, you can request an inspection to ensure the home is up to your standards. Your mortgage lender will also order an appraisal to confirm that the home's value isn't less than your bid. If it is, you'll need to come up with extra cash to cover the gap—or you might decide to walk away from the deal if you have an appraisal contingency in your contract.
5. Close on Your Home
If all goes well, the final step is to close on your new home. This is when you'll:
- Review your loan documents and application
- Finalize your home loan
- Provide the rest of your down payment
- Cover your closing costs
- Prepay a portion of your property taxes, homeowners insurance premium and mortgage insurance premium (if applicable)
Learn more: How to Buy a House
Frequently Asked Questions
The Bottom Line
Buying a foreclosed home could be a great way to save money in the long run. It might involve taking on more risk, but that may be well worth it if the price is right and you're happy with the property. Just be prepared to make a cash offer if you're buying through an auction.
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About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
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