How to Buy a Foreclosure

Written by Tina Volpe
Updated September 29, 2015
blue colonial house
Buying a foreclosed home may be a good investment, but there are several things to consider. (Photo courtesy of Angie’s List member Brenda A., Florence, S.C.)

Whether you're looking for a home or an investment, consider buying a foreclosed home.

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Have you thought about buying a foreclosed house? Perhaps you need more space, a nicer neighborhood, better schools, or just in the market for a deal or investment?

Finding foreclosures is as easy as a click on the right website, or a call to your local Realtor.

Websites are ideal because there are so many possibilities and so many that offer distressed/foreclosed properties for sale. But being prepared is key to grabbing up a deal when it presents itself.

Deciding on a property can depend on how much work it takes to be livable. That is a major catch: livability. Many foreclosed homes have been stripped clean. Never buy a foreclosure, short sale or REO (bank owned) home unless you've seen it.

The types of distressed homes to focus on depend on many things. Your credit, cash flow, amount of pre-approved loan you're qualified for, the location and of course the price.

Know your credit rating, savings or CD/401k availability, and talk to your bank about getting pre-approved for a qualifying loan. You wouldn't want to miss out on an opportunity because you were waiting for the paperwork.

How to find a great deal on a foreclosed home

There are several options for a great deal, such as homes that are going into foreclosure and being sold as short sales. This is when the seller is in default, but negotiating with the bank to take less than their mortgage in an effort to escape foreclosure. The bank usually allows a sale for less than owed, but how much is uncertain until an offer is made. It's helpful to have a Realtor with short sale experience for this kind of transaction.

Another great opportunity is real estate property auctions. When a bank has recently foreclosed, they put the home up for auction for the amount of the first mortgage. You can use a real estate auction company to search for upcoming auctions. Know the value of the home before bidding. Bidding wars can cause a frenzy and hike prices up above their worth.

Buying directly through banks is another choice; since banks are not in the real estate business they are likely to take low ball offers on their REOs just to get rid of them. Using a good REO Realtor is strongly suggested, to act as a liaison between you and the bank. Most REOs are listed, some aren't. Banks such as Country Wide, Wells Fargo, Bank of America, Chase and other major mortgage holders list them on their website.

Many websites offer lists of foreclosed homes, such as Foreclosure.com, however these companies sometimes ask for a fee and might not stay as up-to-date as other sites. Check the sites, but be aware of the dates.

Generally the least expensive purchase of a foreclosed home is through HUD (Housing and Urban Development.) Depending on your state and the situation (how long it's been available, what the mortgage is, etc.) you can walk away with a home for little down and a dirt-cheap price. They do require you work with a real estate agent to assist you in your bidding and purchase.

Another great method is to drive around the areas you want to live. Homes that have been foreclosed often have a sign offering it for sale with a Realtor's number listed.

Again, finding a knowledgeable real estate agent can help with your search.

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