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Looking to buy a new home but worried you won’t be able to afford the monthly mortgage payment that comes with it? Or maybe you want to buy in a popular neighborhood, but you think its homes are too expensive for your budget? Purchasing a foreclosed home might be the solution.

A foreclosed home is one that’s usually owned by a bank or lender. Lenders can foreclose on a home when homeowners stop making their regular monthly mortgage payments, meaning that they take over ownership of that residence.

Banks and mortgage lenders will then try to sell these homes, often at lower prices. And that’s the main benefit of buying a foreclosed home: You might nab a residence that would’ve otherwise been out of your price range. Banks and lenders often price foreclosures lower so they can sell the properties in less time.

You might worry that buying a foreclosed home comes with a greater risk of ending up with a home that needs tens of thousands of dollars of repair work. You might also worry that bidding on a foreclosed home is a complicated process, one that’s impossible for the average home buyer to navigate.

Don’t fret. Yes, buying a foreclosed home does require a few extra steps and some additional planning. But the process isn’t overly complicated, and buying the right foreclosed property can get you a home at a bargain price.

Here’s a closer look into how to buy a foreclosed home and the information you need to make the process as simple as possible.

What Is A Foreclosed Home?

A foreclosure takes place when a homeowner can no longer make their mortgage payments and must forfeit the home back to the bank. When this happens, the lender or bank takes ownership of the home.

Naturally, most banks don’t want to be in the homeowning business. That’s why most want to sell their foreclosed homes as quickly as possible. The best way to do this? Offer the home at a lower price than what buyers would expect to pay for a similar home in the same neighborhood.

Buyers looking for more home at a lesser price will often explore the foreclosure market in search of a housing bargain.

The challenge with foreclosures today, though, might lie in finding them. ATTOM Data Solutions reported that the number of distressed homes on the market (homes sold by banks, in third-party foreclosure sales or as short sales) continued to decline in the second quarter of 2019.

ATTOM said that the number of distressed home sales in the second quarter accounted for 11.4% of all single-family and condo sales. That’s down from 14% in the first quarter of the year.

Different Types Of Foreclosed Homes

Foreclosures can be categorized into four different types:

Pre-foreclosure

A pre-foreclosure, or short sale, can occur when the homeowner still owns the property and knows there’s a potential for foreclosure. Owners want to sell their home before they end up in foreclosure. This means that short sales aren’t technically foreclosure sales.

Short sales can also prove to be challenging. In a short sale, owners get permission from their lender to sell their residences for less than what they owe on their mortgage. If the owners owe $180,000 on their mortgage they might still list the home at $160,000 even though such a sale leaves them $20,000 short of being able to pay off their entire mortgage loan. In some short sales, the owners’ bank agrees to take this loss as a way to get the home sold and the mortgage (which might otherwise go into default) off their books.

The goal for the owners is to offer their home at a price that’s low enough to ensure a quick sale before they fall behind on their monthly payments. Buying at this stage can be tough, though. Even if the sellers agree to your offer, their bank or lender might reject it if it’s too low.

Auction

The traditional way to buy a foreclosed home is at a real estate auction. At an auction, third-party trustees run a sale of homes that banks or lenders have taken ownership of after the original homeowners defaulted on their mortgage loans. 

Buyers can purchase a home quickly (and often for a low price) at an auction. But there are hurdles, too. One example is that an auction typically requires buyers to have cash on hand.

There are also plenty of risks. A home you buy at an auction might have a lien on its title from a government agency, especially if the former owners stopped paying property taxes on it. In addition, a home bought at auction might require expensive repairs. You also might not have the chance to order an appraisal on the home. During an appraisal, a real estate appraiser determines how much a home is worth in the current housing market. Without an appraisal you run the risk of paying too much for a home even if you buy it at an auction.

REO

You can also buy a foreclosed home directly from a bank or lender on the open market. You might see the term REO while searching for home listings. This stands for “real estate owned” and denotes a foreclosed property that’s now owned by a bank or lender. At this stage the bank has secured the home at an auction and is now selling the home to recoup what’s owed on the property. The bank will likely hire a local real estate agent to put it on the market.

Government-owned 

You might also consider buying government-owned foreclosure properties. These properties are similar to the ones owned by banks or lenders. Government agencies typically take ownership of homes after the owners default on mortgage loans insured by the federal government.

Here’s a good example: When owners stop making payments on a home they financed with an FHA loan, the U.S. Department of Housing and Urban Development (HUD) takes possession of the foreclosed home. Government-owned foreclosures are mostly sold “as-is,” which means that any repairs are your responsibility. In some cases the government may repair any structural needs before selling, or you could request a repair. You might have to place an offer or bid before viewing or inspecting the home.

How To Buy A Foreclosed Home

You might be intimidated by the thought of buying a foreclosed home. But the process of buying a home in foreclosure isn’t too different from purchasing a traditional home. Buying a foreclosure does require additional research, and you’ll need to be comfortable taking on a bit more risk.

But if you work with a real estate agent who understands your local foreclosure market, the stress shouldn’t be much higher than during a traditional home buy.

Here, then, are the steps you need to take in order to successfully buy a foreclosed home:

1. Determine How Much Home You Can Afford

Budgeting matters when buying a foreclosed home. Yes, you might be able to nab your new home at a lower price tag. But foreclosed homes aren’t free. And despite what you might have heard, you can’t buy a foreclosed property for $1 either.

You’ll need to craft a household budget listing your monthly income and expenses (including estimates for discretionary expenses such as eating out and entertainment) to determine how much of a mortgage payment you can afford each month. If you don’t do this, you might purchase a home you can’t afford even if you’re looking for a foreclosure. By purchasing a home that’s out of your budget, you’ll struggle to make your own mortgage payment each month.

As with any home purchase, it’s important to predetermine your debt-to-income (DTI) ratio. As the name suggests, this ratio analyzes how much of your gross monthly income your monthly expenses (including your estimated new mortgage payment) will consume. Most lenders want your monthly debts to take up no more than 43% of your gross monthly income. If your debt-to-income ratio is higher than that, you’ll struggle to qualify for a home loan.

Be especially careful when buying a foreclosed home. You might be tempted to buy a foreclosure with a price tag that’s at the very top of your budget. The problem with this is that the foreclosed home might require expensive repairs. If you’ve purchased a home at the top of your budget, you might not have enough money to afford those needed repairs.

Struggling to determine how much home you can afford? Try out our Home Affordability Calculator. It can provide you with the information you need to make the right buying decision.

2. Hire An Experienced Real Estate Agent

If you decide to go the route of purchasing a foreclosure, you’ll want to find an experienced real estate agent who has access to a local multiple listing service and knows the local market. This agent can help you determine when a foreclosed home is offered at a bargain price or when it’s listed at an asking price that’s too high for the risk involved. An agent may also help you find foreclosed properties that other buyers might miss.

Additionally, a good real estate agent can discuss challenges you could run into with a foreclosed property. Bear in mind that every state has unique laws and regulations concerning foreclosures. It’s important to work with an expert who understands these laws.

3. Get Preapproved For A Mortgage

Getting preapproved for a mortgage is a smart move no matter what type of home you buy. In the preapproval process, a lender will run your credit and verify your income and debt at no charge. This lender will then determine how much of a mortgage it can approve you for.

Once you get a preapproval letter from a lender, you’ll know exactly how much you can spend on a home. If a bank approves you for a mortgage of $200,000 you won’t waste time looking at homes that cost $300,000.

Have a preapproval letter also makes you an attractive buyer. Sellers (i.e., banks or government agencies in the case of foreclosures) prefer working with buyers who they already know can qualify for a mortgage. They don’t worry that you won’t be able to get a loan, thus dashing their home sale. If multiple buyers put in bids on a home, sellers are more likely to work with buyers who’ve already been preapproved for a mortgage (all things being equal).

Banks and lenders can be particularly sensitive to credit issues in foreclosure situations, so a good credit score will be especially important during the preapproval process.

The smart move is to shop around for mortgage lenders. Don’t simply work with the first mortgage lender you find. Instead, search for the lender that’ll give you the lowest interest rate and loan fees. You might want to consider applying for a loan through Rocket Mortgage®. We have the staff and expertise necessary to help you navigate the foreclosure process. We’re also fast, something that can be important during the often tedious process of buying a foreclosed home.

If you get preapproved from one lender and want to purchase a bank-owned property, that specific bank or lender may want you to get preapproved through them usually to confirm your eligibility or just simply for the selling opportunity.

Know that you’re not obligated to go with that lender. You can still use your preapproval from your original company to qualify for the bank-owned home.

There’s a difference between being preapproved and earning a full, final approval for a mortgage loan. Remember that you get your preapproval before you’ve even found a foreclosed home to buy.

Once you find your home and make an offer that’s accepted by the seller, you then apply for full approval. If you’ve already earned a preapproval from a mortgage lender, it’s often easier to apply for full approval from the same lender that’s already studied your income and credit. However, this lender might still require you to submit copies of your latest pay stubs, tax returns and W-2s before granting you full or final approval. Your lender will want to make sure nothing has changed for you financially since you first earned your preapproval.

4. Make A Competitive Purchase Offer

If the home is in pre-foreclosure, your real estate agent will need to present the offer to the individual who currently owns the home.

If you’re looking at a foreclosed home that’s headed to auction, you’ll need to contact the trustee/attorney who’s running the auction to ask any questions about the house before the auction takes place. A trustee is a third party who runs an auction on behalf of a lender or government agency. This official accepts the bids during an auction.

If the house is REO, your agent will present your offer directly to the bank’s listing agent. A buyer’s agent will never have direct contact with the bank. The process is similar for government-owned listings: Your real estate agent will again present your offer directly to the government agency listing the home.

You might be tempted to make a low offer on a foreclosed home. It’s true that foreclosed properties often sell for less than traditional homes. But if you make an offer that’s too far below market value, the sellers (whether it’s a federal government body, a bank or a lender) might reject it. It’s important, then, to work with your real estate agent to make a competitive offer. Your agent will advise you in what this figure should be.

You should also include a contingency for a home inspection in your offer. (Note: You won’t be able to do this if you’re buying a foreclosed home at auction.) This contingency says that the home sale can’t be finalized until you’ve scheduled a home inspection of the property.

5. Get A Home Inspection

Once again, keep in mind that you’re buying a foreclosed home as-is. This means no one on the selling side (whether you’re buying from a bank, lender or government agency) is going to pay for any needed repairs. These repairs are your responsibility.

Because of that, it’s very important that you inspect the property as part of your offer process. And if the home inspection uncovers too many problems or problems that cost too much to fix, you might want to pass on buying the home.

Banks or government agencies will usually allow for an inspection contingency as part of an offer. This means you have the opportunity to order a home inspection after your offer is accepted but before the sale closes. Your home inspector will tour the residence looking for everything from leaks in the roof to evidence of a shifting foundation.

After the inspection, you’ll receive a written report detailing the inspector’s findings. You’re able to walk away from the sale if there are too many problems.

Foreclosed homes tend to offer little to no room for negotiation no matter what the inspection reveals. In other words, you’ll be responsible for any repairs should you move ahead with the sale.

Again, expect to spend more money on repairs for a foreclosed home. To get a better sense for the house’s current state, find out how long it’s been unoccupied and determine if the previous homeowner performed routine maintenance on the home.

To be safe, prepare yourself for the worst so you’re not surprised when problems pop up.

It’s also a good idea to check with your local building department to find out if there are any open building permits that could present issues post-closing.

The process for buying a foreclosed home at auction is vastly different. When you buy a foreclosed property at an auction, you won’t get the chance to schedule a home inspection. You often won’t even get the opportunity to step inside the house. This makes buying a home through the auction process particularly risky. Yes, the prices might be lower. But without a home inspection, you won’t know what problems lurk until after you own the home.

Final Thoughts On Buying A Foreclosed Home

If you’ve dreamt of making the move to homeownership but your budget is tight, buying a foreclosed home might be the right choice for you. It’s possible to find foreclosed homes that are being offered at below-market rates.

Again, don’t rush into this decision. It’s best to work with a real estate agent who can explain both the pros and cons of buying a foreclosed home in your community. And before you make an offer, be aware of the additional risk you might be taking on when you dip into the foreclosure market.

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This Post Has 43 Comments

  1. Trying to purchase a home in Florida that went to Auction this week and did not sell at Auction. Loan holder is Quicken Loans. How do I get to speak with a Foreclosure Specialist at Quicken loans directly to make an offer? Not getting anywhere with Quicken mortgage loan department. Foreclosure Team phone number, please?

    1. It really doesn’t work that way because we don’t control the sale. I can get you in touch with our client relations team to provide whatever information we have if you send me the address but the actual sale is controlled by mortgage investors.

  2. Hello Zing,
    I am a GC in Chicagoland and interested to be an REO/Preservation contractor for bank/lender-owned properties. I have been in touch with other banks and found our they have supplier registration list, do you know about Quicken Loan registration?

    Thanks,
    Mehdi

    1. Hi Mehdi:

      After consulting with our property preservation team, we don’t hire contractors directly. I’m going to email you with a little bit more information. Have a great day!

    1. Hi Lisa:

      The appropriate route here depends on what you’re looking for, so I’m going to email you. If you’re just looking for help with financing, you can get started online or give us a call at (888) 980-6716. If this was a property backed by one of our mortgages and you’re looking for information regarding the sale, I need the address and I can get this to the appropriate team to give me as much information as we can. However, you should know that many foreclosure procedures are controlled by the county or other local authorities in question.

      1. Good day,
        I am interested in a property in Lima OH. The address is 591 Powers Ave, Lima, OH 4580. We started a Church down the street at 630 Powers Ave. right down the street and think this would be a great place to fix up on behalf of our Pastor. We don’t have a ton of money; So this would be a great project for us to put some sweat equity into. I would like to know if we could prospectively purchase this home outside of auction? Also I would like to know what is the minimum we would have to come up with to that end?
        Thanks for your time: Elder Mark Kenner Jr.

          1. Hi Mark:

            Thank you for passing the address along. I’m going to get this in front of the right people to get you as much information as we can. What I will tell you is that the sale process isn’t usually up to Quicken Loans, but rather whatever investor originally backed the mortgage when it was prepared for sale on the bond market.

    1. Hi Tom:

      I’m going to reach out to you right now for the address of the property. I can then make sure this gets to the appropriate team in the morning. We’ll tell you as much as we can. Many times, we don’t control the actual sale of the property, but the mortgage investor (Fannie Mae, Freddie Mac, FHA, etc.) does. However, if there’s any information to give, our team will be able to tell you. Thanks!

  3. Hi,
    I am a Realtor in the VA BCH VA area. Quicken Loans owns a home in Va Bch that they had listed with another agent, I wrote an offer to purchase on the property on 12/14/18. The home has significant damage and my investor adjusted the price accordingly. We are trying to close before the end of the year. The listing agent has not heard back from the asset manager yet. Is there someone I can speak with directly to try and find out what is going on. Any help would be appreciated.

    Sincerely,

    James Bambury

    1. Hi James:

      I’m going to reach out to you for the address of the property and from there, I can work to get this to our client relations team who will give you as much information as we can. In many cases, we don’t control the actual sale. Fannie, Freddie, FHA, etc. does. I’m sending you an email. Have a good day!

  4. I’m interest in the property at 1447 Black Oak Drive, Sapphire, NC that is owned by Quicken Loans. Thanks for your help in this matter.

    1. Hi Brian:

      I’m going to reach out to you for the address of the property and from there I can get it to our team to give you as much information as we can.

  5. I’m interested in purchasing a home that is just beginning the pre-foreclosure process. Quicken Loans is the lender and I know the home owner, they have told me the amount they owe to satisfy the debt but it is a little out of my budget. I am wondering if Quicken Loans would accept a short-sale now to avoid the foreclosure process that usually takes 6 months or more + lawyer costs.

    1. Hi Marcus:

      I can tell you that short sales can take a long time, too. That said, I’m going to have someone email you for more information on the property and maybe at that time we can go over whatever options you may or may not have. Thanks!

  6. Hi, I am interested in a home that is foreclosed upon by Quicken Loans in FL. Could someone contact me regarding this? Thank you.

      1. hi, I would like to put offer on house with address 43 ridgeway dr ringgold ga 30736
        it was reverted to beneficiary on auction and lender is quicken loans,send me and info how to get in touch with right people thanks.

  7. Hello, i would like information on a quicken owned property that just went to foreclosure located 165 co rd 859 cullman al . Please email me information of how to buy it, it will be a cash offer.

    1. Hi Aleisha:

      I’m going to get this to our team to try to give you as much information as we can. I will tell you that we don’t control the sale of the property. That’s up to the investor (Fannie Mae, Freddie Mac, FHA, etc.), and if it goes to something like a sheriff’s sale, that’s scheduled with the county authorities. Someone will be reaching out. Thanks!

  8. Is it possible to get a loan to flip a home to sell ? No assets ….. the home would be the asset …. is that possible ?

    1. Hi Gale:

      You would have to have some sort of assets outside the house itself to get a loan from us.

      Thanks,
      Kevin

  9. I am interested in the property adjoining mine it is a quicken financed home that is now empty and soon to go to foreclosure who do I speak to about this home?

    1. Hi Steve:

      I’m going to reach out to you for the address and then I can get it over to the right team. Thank you very much for reaching out!

      Kevin Graham

        1. Hi Marcia:

          I’m going to reach out to you for the address. From there, I can get it to our team to give you as much information as we can.

          Thanks,
          Kevin Graham

  10. I am interested in a foreclosed home owned by Quicken Loans located in Los Lunas, NM. Can you please let me know who I contact? Thank you!

    1. Hi Thomas:

      I’m going to reach out to you for the exact address and then I will get it over to the right team. Thank you very much for reaching out!

      Kevin Graham

  11. Hi I am interested in purchasing a foreclosed home owned by Quicken Loans and located in VT. Can you please let me know who I contact? Thank you!

    1. Hi Kristen:

      I’m going to pass this along and make sure we have someone reach out.

      Thanks,
      Kevin Graham

  12. I am a Real Estate Broker in NC and have someone interested in purchasing a home that is in the foreclosure process with Quicken loans and also a VA loan. Who do I need to contact for the procedure of making an offer for a short sale prior to the auction date? Thank you.

    1. Hi Ron:

      I’m going to get this to our Client Relations team and they can direct you to the right place. Have a great day!

      Thanks,
      Kevin

    2. I am interested in purchasing a home that Quicken Loans has setup to go to public auction on Jan 17
      Can someone please contact me to see if I can purchase before it goes to auction or any details on the home.

      Thank You,

      Mark

      1. Good morning, Ron. I’m going to recommend that you speak with one of our home loan experts. Please give them a call at 888-980-6716.

  13. How do I buy a REO property from Quicken Loans.
    QL just bought a house back in my neighborhood I want to purchase for my
    Single daughter and her young son?

    1. I’m going to be sure to pass this along and get you in touch with the right team. Thanks for reaching out!

      Kevin Graham

      1. Hi Kevin, Can you help me out with this info. too. Or pass my info. to the right contact person. There is a property in my town that I believe QL owns that I am interested in purchasing. Thank you!!

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