How to Buy a House in Foreclosure

Real estate investments can cost you a lot of money and be very high risk. Unless you buy your investment property wisely. One of the best ways you can lower your risk and save tons of money is by buying a house in foreclosure.

When we talk about buying a property, people always look for new or old houses. Instead, if you want to get the best deal, you should think about buying a house in foreclosure. You will spend less money on buying a foreclosed house and as a result, you will make more profit in wholesaling houses.

What is foreclosure?

What is buying a house in foreclosure

Whenever the owner of the house can no longer pay the mortgage installments or loan, the home will fall into foreclosure. In other words, the mortgage lender or bank will take full ownership of the house.

When the lender or mortgage company gets full ownership, they will sell the house to recover there cash. In most cases, the price of the house in foreclosure will cost less then market value. Hence, you can easily get the house at a low price and later on sell it for a higher price.

Types of foreclosure

Before we jump into buying a house in foreclosure, you need to understand the types of foreclosure. There are 3 types of foreclosure houses.


Pre-foreclosure is not a foreclosure but a potential foreclosure. It is the stage where the homeowner has fallen 3 months behind on their mortgage payments. To save themselves from this debt and ruining their credit. They might sell the house to someone fast for a low price. In some cases before anyone can buy the home. The bank or lender may have to approve the sell. If the bank or lender agrees to sell the property, you can proceed with further paperwork.


House auction

Many of the mortgage lenders will sale foreclosed homes by utilizing a third party auctioneer service. The auctioneer service will conduct the auctions where anyone can bid on the houses. Depending on your knowledge of the housing market, you can proceed to bid on the auction wisely.

If there are a lot of people bidding on a particular property. It could mean that there is a huge demand for that house (maybe it’s for the area or just for the house). So, you are able to take advantage of the situation. Meaning when you sell that particular house, it would be a quick-sale and will give you huge profits in return.

Real Estate owned (REO) and Government-owned

Real estate owned properties

The next option available for buying a house in foreclosure is REO. You can directly go to the home listings of the mortgage lender. You will find all the information directly on the listing. From there you can proceed to buy the home if you like it.

In the same way, if the loan is insured by the federal government, it will be considered as government-owned. Hence, if someone fails to pay the mortgage loan insured by the government, the house will go to the government-owned listings. You can also purchase a house from there.

The listings can be found on the internet. It depends on the mortgage loan lender and the country you live in. A simple internet search could list all the listing websites.

Steps for buying a house in foreclosure

Now, let’s jump into the steps for buying a house in foreclosure.

Step 1: Know your requirements

The first thing you need to do is to know your requirements. Before you start searching for a house, you need to setup some ground rules.

From a real estate investors stand point, there are two main things that you should keep in mind. The first one is the pricing (your budget) and whether you can sell it for a profit after buying. Further, you can also take the location of the house, condition of the house, and similar things into consideration.

Step 2: Find the foreclosure houses

Find the foreclosure houses

Your next job for buying a house in foreclosure is to look for the foreclosed houses. There are many ways you can find these types of houses. Let’s see some of the basic ways to find such houses.

  • The easiest way is to get a real estate agent to set everything up for you. However, this method does cost money.
  • You can look for the listings yourself.
  • The mortgage lender’s listing will have all the information you will need.
  • You can look for ads online, T.V. or in newspapers.

There are many other creative ways you can find foreclosed homes. These are just some of the basic ways.

Step 3: Run the analysis

Run the analysis on your foreclosure investment property

The third step is to do an inspection and run a Comparative Market Analysis (CMA). It will give you all the information you need to know about a particular house. Before proceeding, you will also need to make sure that you have enough cash in hand (especially if you are going to an auction). Foreclosed houses are sold in “as-is” condition. In other words, no one guarantees the condition of the house. Hence, you need to keep that in mind before making your purchase.

Further, if the condition of the house is too bad, you might also want to consider some costs for the renovation. Repair cost will have a huge impact on the profit you make. Buying a house in foreclosure might need a lot of repairs. So, you need to be ready for it. However, if you are looking for a standard foreclosed house, it might need fewer repairs.

Even if the home does require a lot of work. You don’t have to worry about that too much. As you are paying a very low price. Most of the time you will still generate a great return on your investment.

Step 4: Make the purchase

The last thing you need to do is make the purchase. Later on, you can rent or flip the foreclosed house and make some good profit from your real estate investment. So, that’s pretty much the basics when purchasing a foreclosed home.

Conclusion: Buying a house in foreclosure

To conclude, these were some of the easy steps on buying a house in foreclosure. We also saw the types of foreclosures and a couple of things that you need to keep in mind before purchasing. You can buy any type of foreclosure house; it is totally up to you on how you want to proceed. Just make sure you get a good return on your investment.

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