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Buying a foreclosed house can be tempting. Foreclosed homes can offer steep price discounts, for one, and there’s often less competition for these properties — particularly if they require some repairs or updates before moving in.
But buying a foreclosure isn’t the same as buying a traditional house, and there are some extra hoops you may need to jump through to make it happen. Understanding the process can help you be prepared to purchase a foreclosed property.
Read more: How to buy a house
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There are many reasons a foreclosure may appeal to a home buyer. The biggest typically comes down to pricing. Depending on where you look, foreclosures may offer price discounts ranging from 5% to 36% compared to traditional properties (though not many recent studies have been conducted). Let’s say a house would normally cost $300,000 — with this discount in mind, the sales price could drop to $285,000 to $192,000.
You also might find less competition with a foreclosure, especially if it’s a property in disrepair. This could make it easier to buy a home if you’re in a hot housing market.
Another potential perk is that the buying process may be quicker. This is particularly true if you’re buying in cash or at auction.
Learn more: How to know if you’re in a buyer’s market or seller’s market
There are many places to find foreclosed properties. Traditional property listing sites like Zillow, Redfin, and Realtor.com all list foreclosed properties, and you can filter your search to find these types of homes specifically.
Lenders and government agencies also have listing sites for homes they’ve foreclosed on — or are in the process of foreclosing on. There are also foreclosure-specific listing sites. Some of the options to explore include:
A local real estate agent can also help you find foreclosed homes in your area. Just make sure you find a Realtor that specializes in foreclosures.
Dig deeper: What do real estate agents do, and do you need one?
The exact process for buying a foreclosed home can vary. You may be able to buy a house with a specialized real estate agent, or you may need to attend an in-person auction and make a bid there.
Generally speaking, here’s what the process looks like:
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Enlist a real estate agent: Some agents specialize in foreclosures and bank-owned properties and can help you find potential houses, bid on them, and finalize the transaction.
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Determine how you’ll pay for the home: If you’ll be financing the home, go ahead and choose a mortgage lender. Then, get preapproved for your loan. This will allow you to make an offer quickly once you find a property. Keep in mind that you will likely need to pay in all cash if you’re buying a home at auction.
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Find a foreclosed home: You can use the sites listed above to find a foreclosure property or go through your agent. They may have connections in the area or be able to access local foreclosure notices that can help you spot potential homes. If the house requires you to buy through an agent (which many bank-owned homes require), you can make an offer on the property now. If it’s a home being auctioned, you’ll need to wait until the official auction date to submit a bid.
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Get the house inspected and appraised: Home inspections and appraisals aren’t always options with foreclosures (it depends on whether they’re still owned by the bank). But if they are with the house you’re buying, don’t skip these steps. They’ll help you spot any potential issues with the home and ensure it’s worth what you intend to spend on it. Ask your agent if you can have the home inspected prior to closing or auction.
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Buy the home: The last step is to buy the house — either by attending an auction at a local courthouse to bid on the home or going through your agent to purchase directly from the bank or lender that owns it. If you’re doing the latter and using a mortgage loan, ensure you have enough money for your closing costs and down payment, as these will be due at closing. If you’re buying at auction, have the cash ready to hand over if you win the bid.
If you’re not sure how to go about buying a foreclosed home in your area, talk to a local Realtor or real estate attorney. They can point you in the right direction.
Learn more: What is a real estate attorney, and how much do they cost?
Foreclosures can come with lower prices and other perks, but they’re not without risk. The biggest is that they’re sold as-is. This could mean they’re in poor condition or need lots of repairs before they’re safe and move-in ready.
Additionally, foreclosed homes are popular buys for real estate investors, so you may need to act fast to snag one. Foreclosures are often used as fix-and-flips, which investors purchase, repair, and re-sell for a profit.
Finally, there can also be issues with the previous residents. If the home was a rental, you may need to evict the tenants before you can work on the house. There might be squatters, depending on how long the home has sat vacant. There’s also the right of redemption to consider. This allows the previous homeowners a window to reclaim their property, even after the foreclosure sale.
The major downside of buying a foreclosure is that foreclosed properties are sold as-is and are sometimes in a state of disrepair. You also may encounter issues with former tenants or residents and face competition from investors.
The most significant benefit of buying a foreclosed property is that it usually comes at a lower price than a traditional home. The process may also be faster, particularly if you pay in cash.
At a foreclosure auction, the home is usually sold to the highest bidder. Afterward, there will be a redemption period when the previous owner can still become current on their mortgage payments and reclaim the home. If they cannot pay, they will move out, and the person who bought the house at the auction will move in.
This article was edited by Laura Grace Tarpley.