Jeanette Duarte

Sales Manager/Loan Officer

NMLS: 253913

Read This Before You Buy A Foreclosure

One popular way to get the most home for your money to buy a foreclosed property. The home loan application is the same as another type of home purchase but there are a few key differences that you need to be aware of. The first thing you need to know is that there are two ways to buy a foreclosure. You can purchase a foreclosure through auction or as a real estate owned purchase. Here are the differences:

Auction Purchase

When a bank forecloses on a property, it's offered at a "public foreclosure auction." At this auction, the bank will attempt to sell the home to the highest bidder --like a traditional auction. However, in this case, the risk can be pretty high. Typically, you won't get a chance to inspect the home before and it often requires the purchase to be completed immediately through cash or certified check.

So unless you have the money on hand and are willing to risk buying a home you've yet to inspect, buying a foreclosure at auction may not be right for you.

But there is another way --a better way!

Real Estate Owned Properties

If the property doesn't sell at auction, it then becomes a real estate owned, or REO for short. Buying an REO property is similar to purchasing a traditional real estate property. You apply for a home loan, decide on the loan program and the rate that is right for you, you work with a real estate agent, perform inspections, and finance your home through a mortgage.

Note that REO homes are typically sold as-is.

Why is that? By the time the REO property on the market, the bank is already operating at a loss. Hence, they're not willing to invest in "fixing it up" to make the sale. Their goal is to recuperate as much of the loss as they can, as quickly as possible.

Tips for Buying a Foreclosure

If you're thinking of buying a foreclosed home, understand that the cost to repair the home will fall entirely on your shoulders. The amount and cost of the repairs vary greatly so there is no way to truly estimate it until you know the property and have inspected it. 

Also, know that some situations may require you to have extra cash-on-hand for repairs in addition to your down payment and closing costs. But don't let this scare you off!  A renovation loan sometimes allows you to include the costs of repairs into your mortgage.

Perform an Inspection and Title Search

The big advantage of buying an REO is that you can perform an inspection first, and we encourage you to do that before committing to any property. Other than getting a better idea of how much it will cost to repair, you can also include a contingency in your offer. So if the property needs more work than previously stated, you have the option to withdraw your offer. 

Do a title search, too! Although rare, some foreclosures are sold with liens attached. This means that any debt against the property will become your responsibility once you are the owner.  

Have more questions about applying for a mortgage to purchase a foreclosure? We're here to help! Contact us today to get the help and guidance you need for all your home purchasing, refinancing, and renovation loan needs.


* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.