Dreaming of homeownership but feeling priced out of your ideal neighborhood? Foreclosed homes could be your ticket in. These properties often sell at a deeper discount than comparable homes, but they come with some quirks you need to be aware of before making an offer.
Key Takeaways:
- A foreclosure is a home that’s owned by a bank or lender after a borrower defaults on their loan payments.
- Foreclosures are often sold at lower prices, offering potential buyers a discount.
- You can use any loan program to buy a foreclosed property, including low-down payment FHA and certain conventional loans.
What Is A Foreclosed Home?
A foreclosed home is usually owned by a bank or lender. When a homeowner stops making their monthly mortgage payments, their loan goes into default and a lender can initiate the foreclosure process and take over ownership of the residence.
Banks and mortgage lenders usually try to sell these homes as quickly as possible, often at lower prices.
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2025 Foreclosure Market Overview
Foreclosures don’t comprise a large share of the housing market, but they’re out there.
In the first half of 2025, 187,659 U.S. homes were involved in foreclosure proceedings, according to the Mid-Year 2025 U.S. Foreclosure Market Report, prepared by ATTOM, a provider of real estate data. These included properties with default notices, bank repossessions or scheduled auctions. That’s up 5.8% from the same period a year ago.
The uptick in foreclosure activity is concerning, Rob Barber, CEO of ATTOM, said in the report.
“While the overall numbers remain below pre-pandemic levels, the persistent rise suggests that some homeowners are still facing financial challenges amid today’s housing and economic landscape.”
Additionally, ATTOM found that 140,006 homes in the U.S. initiated foreclosure proceedings in the first six months of 2025. That’s a 7% jump from the same period a year ago. While foreclosure starts fell 10% in June from the previous month, they were up 17% compared to a year ago, ATTOM reported.
While the increases might seem steep, just 0.13% of all homes in the U.S. had a foreclosure filing in the first half of the year. That’s a tiny slice of the housing market and nowhere near levels seen in the years following the Great Recession. From 2007 to 2010, nearly 4 million American homes were lost to foreclosure, according to an analysis from the Federal Reserve Bank of Chicago.
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Pros And Cons Of Buying Foreclosed Homes
Pros
- A foreclosed home typically has a lower purchase price.
- You might be able to buy a home in a neighborhood that would’ve been out of your price range.
- A foreclosure property has the potential for a higher return on investment.
Cons
- Many foreclosed homes are sold as is and may need extensive, costly repairs.
- The foreclosure buying process can take longer than the traditional home-buying process.
- You might not be able to add a home inspection contingency to your offer if you buy a foreclosure, because the properties are usually sold as is.
What Are The Most Common Ways To Buy Foreclosed Homes?
Buyers can use several approaches to buy a foreclosure. The best method will depend on each buyer’s needs.
Here are common ways to purchase a foreclosure:
Buying A Foreclosure Property At An Auction
Traditionally, many buyers purchase foreclosed homes at real estate auctions. At an auction, third-party trustees oversee the sale of homes that banks or lenders have taken ownership of due to the original homeowners defaulting on their mortgage loans.
Buyers can purchase a home quickly – and usually for a low price – at auction. But there are logistics to keep in mind. One is that auctions typically require buyers to have cash on hand.
And there are risks to weigh:
- The home may have a lien on it from a government agency, which would likely be the case if the former owner stopped paying property taxes. As the new owner, you’d be responsible for paying the missed taxes.
- The home may require expensive and extensive repairs.
- A buyer might not be able to order a home appraisal to determine the property’s market value. You run the risk of overpaying for a home without an appraisal.
Buying A Government-Owned Property
Typically, the safest option is to buy a government-owned foreclosure property. Government agencies, like the U.S. Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA), acquire homes after owners default on the mortgage loans they insure.
Government-owned foreclosures are mostly sold as is, and you might have to place a bid on a property sight unseen. Any repairs typically become your responsibility, though in some cases, the government might repair structural defects before a sale.
Buying An REO Home From The Bank
You might see the abbreviation REO while browsing home listings. It stands for real estate owned. An REO home is a foreclosed property owned by a bank or lender. Once a property is REO, the bank typically clears any liens on the property and ensures the previous homeowner has moved out.
At this stage, the bank has acquired the home at an auction and is now selling the REO home to recoup the money owed on the mortgage. The bank will likely hire a local real estate agent to list and sell the property.
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Where To Find Foreclosed Properties
Here are some avenues to find REO properties where you might not think to look.
Online home listing search portals: Narrow your search to either pre-foreclosure or foreclosure listings in your search criteria. Most search portals allow you to browse listings for free.
Multiple Listing Service (MLS): Most banks and lenders list their REO properties on the MLS, a comprehensive local database of all homes on the market. Your real estate agent can help you identify foreclosures in the MLS and filter REO properties in their search.
Paid foreclosure databases: Foreclosure.com and RealtyTrac.com provide comprehensive REO listings, but they cost $40 – $50 per month. Before subscribing, ask your agent if they subscribe to these sites and can sign up to receive alerts on new foreclosure listings that match your criteria.
Government websites: The Treasury Department offers online listings of properties seized by the IRS for nonpayment of taxes. These are sold through auctions at deep discounts. Additionally, foreclosure notices are filed with the county clerk before they appear online. If you’re handy with local public records research, that’s another way to gain early access to REO listings coming to market.
How To Buy A Foreclosure Home: Step-By-Step Guide
You may be intimidated by the thought of buying a foreclosed home, but purchasing a foreclosure isn’t too different from the traditional method of buying a home. However, a foreclosure requires additional research, and you’ll need to be comfortable taking on a bit more risk.
Let’s review the steps you’ll need to take to buy a foreclosed house with confidence.
1. Determine How Much Home You Can Afford
Budgeting matters when buying a home – including a foreclosed home. While you might nab your new home for a lower price tag, you should also consider how much you can realistically afford. Before buying a foreclosed home, ask yourself if you can afford:
- Repair costs: How much will needed repairs or renovations on the foreclosed home cost?
- Insurance costs: Does the property have issues that might make it harder to insure or require an expensive homeowners insurance policy?
- Property taxes: Even if the home is affordable, does it have higher property taxes based on the area?
First-time home buyers should be cautious when considering a foreclosed house. They might be tempted to buy a foreclosure with a price tag at the top of their home-buying budget. But expected (and unexpected) repair costs could turn their dream home into a bottomless money pit.
Are you trying to determine how much home you can afford? Try out our home affordability calculator to get the numbers you need to make the right buying decision.
2. Hire An Experienced Real Estate Agent
If you decide to purchase a foreclosure, consider working with an experienced real estate agent who knows the local market.
An experienced real estate agent can discuss challenges you may run into with a foreclosed property. Bear in mind that every state has laws and regulations concerning foreclosures.
Look for agents with special training in handling these transactions, such as those who have the Certified Distressed Property Expert (CDPE) designation or Short Sales and Foreclosure Resource (SFR) certification.
3. Get Preapproved For A Mortgage
No matter what type of home you buy, getting preapproved for a mortgage is a smart move. You can get preapproved at no charge by shopping around with two or three lenders. It involves a lender running your credit, checking your debt-to-income ratio (DTI) and verifying your income and employment to determine how much to lend you.
Once you get a preapproval letter from a lender, you’ll know exactly how much you can spend on a home. Adjust your house-hunting budget to align with a comfortable monthly mortgage payment after all your bills are taken into account. Just because you qualify for a $500,000 loan, for instance, doesn’t mean you can accommodate the monthly payment once childcare, groceries and utility bills are factored into the mix.
4. Do Your Due Diligence
Assess a house’s condition as much as you can before making an offer. Even though you can’t have an inspection performed until your offer is accepted, you can still do research. Learn how long the home has been unoccupied, and ask the listing agent for information about the age and condition of the home’s systems and the roof, if possible.
Check with your local building department to see if any outstanding building permits exist that might develop into an issue after you close.
5. Make A Competitive Purchase Offer
If your initial research doesn’t reveal any red flags, start to draft an offer on the home. Who gets the offer will depend on the stage of the foreclosure process.
- If the home is in pre-foreclosure, your real estate agent will present the offer to the homeowner, but the bank must approve the amount.
- If it’s a foreclosed home headed to auction, you must submit your offer to the trustee or attorney running the auction.
- If the house is an REO, your agent will submit your offer to the bank’s listing agent.
You might be tempted to make a low offer on a foreclosed home because foreclosed properties often sell for less than traditional homes. But if you make an offer that’s too low, the seller may reject it without countering. Instead, work with your real estate agent to make a competitive offer.
6. Get A Home Inspection
The bank, lender or government agency selling you a foreclosed property usually won’t pay for any needed repairs.
To protect yourself, get a home inspection after your offer is accepted to uncover any defects in the home. If a property has too many or expensive problems to fix, you may need to pass on buying it.
7. Get An Owner’s Title Policy
Your lender will require you to get title insurance, which protects their interests if someone makes an ownership claim on the property. However, this policy doesn’t protect you or your investment. In this scenario, it’s worth getting an owner’s title policy in case someone claims an ownership interest in the property after closing, especially someone who alleges the bank mistakenly foreclosed on them.
You can shop for an owner’s title policy separate from the lender’s policy or use the same lender. This coverage gives you peace of mind that your financial investment is safe in case a dispute over the home’s title arises later on.
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How To Buy Foreclosure Homes: FAQ
Learn more about buying a foreclosure property with the answers to these frequently asked questions.
The Bottom Line On Buying a Foreclosed Home
If a tight budget has been creating roadblocks to homeownership, a foreclosed home may be the right choice if you can find one below market value. But don’t rush into this decision.
It’s best to work with a real estate agent who can explain the pros and cons of buying a foreclosed home. Before making an offer, be aware of the additional risk you may be taking in terms of extensive home repairs or unexpected defects on a property’s title.
Deborah Kearns
Deborah Kearns is an award-winning independent journalist with more than 15 years of experience covering real estate, mortgages and personal finance. Her work has appeared in the Wall Street Journal, Kiplinger, U.S. News & World Report, Quartz, CNN, Forbes, Fortune, Newsweek, The Associated Press and dozens of other outlets. She previously led content and communications at a Top 15 national mortgage company and held writing and editing roles at Bankrate, NerdWallet, LendingTree and RE/MAX. She holds a bachelor's degree in journalism from the University of Florida and a master's degree in public relations from Ball State University.
