Why Buying a Foreclosure Could Make You Rich

Why Buying a Foreclosure Could Make You Rich

By Janelle D. 3 min read | Buying

You begin searching to purchase a home only to find the prices are far beyond your budget. Have you considered saving money by buying a foreclosure? Let's look at whether this option matches your needs and how you could profit in the long run.

A foreclosure is a property in which the homeowner has stopped paying mortgage payments and the bank has taken control of it in order to get the money they're owed. Lenders will try to sell the house for less than it's worth to satisfy the debt and to try to make a profit.

Where can you find foreclosures?  Start by talking to your real estate agent or by visiting some of the websites suggested below. Be aware that some websites charge a fee, while others are free.

HUD or Veterans Administration Foreclosures

As you search for an affordable home, consider a HUD (Department of Housing and Urban Development) or VA foreclosure. These foreclosed homes sell to the public at public auction and can be found for extremely low prices (up to 30-50% off market value). You can visit HUD's website or other foreclosure websites to find HUD homes for sale in your area.

To purchase a HUD foreclosure, your real estate agent will need to be a HUD-approved broker. The agent listed with an online foreclosure will likely be HUD-approved, but do your research to make sure.

Fannie Mae Foreclosures

Many people default on their home loans resulting in the availability of a lot of Fannie Mae foreclosures.  These low priced homes are typically sold through Realtors®, listing brokers, or asset managers working with a listing broker on behalf of FNMA (Federal National Mortgage Association).  Most of these homes are often sold "as is" but some are improved by FNMA to increase the asking price.  Either way, you can purchase a low priced home and take advantage of buyer incentives, low fees, lenient qualification terms, and very low rates.  In addition, you may not have to purchase PMI (private mortgage insurance) which is usually required when buying a home with a loan.


Paying For a Foreclosure

You may have been told that you can only buy a foreclosure with cash, but that is not the only option. There are loans available to help you purchase a foreclosure, including conventional loans, FHA and VA.  You have to qualify for these loans, and the home you wish to purchase usually has to be in good condition.

If you're looking at buying a foreclosure in disrepair, you may be eligible for a federally insured 203K loan. This type of loan not only provides funding to buy the house but incorporates funding for rehabilitating the home so it's livable. Be aware that interest rates are typically higher on these loans and you will pay for points.

Talk to your lender to get pre-approved for a loan. If you don't have a lender, you might start by looking at which lender took over the home and get a pre-approval letter from them. If you should win the foreclosure auction, you're not locked in to using that lender. You might opt to choose a different lender who offers a better rate.

An Insider's Guide To Home Finance

Down Payment

The amount of your down payment will depend on the type of mortgage loan you secure. Take a look at the following down payment requirements for various loans:

  • Conventional loan: 5-20%
  • Fannie Mae: 0-5%
  • FHA: 3.5%
  • VA: 5%

Some loans, like FHA and VA, will not only require a down payment but may require an interior and exterior inspection prior to closing -- especially important with foreclosures, as some homes have been neglected.  When it comes to the condition of a foreclosed home, problems with the home do not have to be divulged, like you would find with a traditional home sale.  Even if a inspection isn't required, pay to have one done.  The money you spend up front could save you thousands in the long run.

Helpful Tips:

  • Find an agent that specializes in foreclosures
  • Get pre-approved for a mortgage
  • Get a home inspection
  • Ask if local taxes are forgiven


  • Interior of home, sight-unseen
  • Title may not be clear
  • Home may come with liens (ex. IRS debt)
  • Original homeowner can regain ownership, in some states
  • Buy at a trustee's sale or sheriff's auction
  • Pay in full at time of sale

Between you and your agent, do some research on the foreclosed home before going to the auction. Your search will most likely reveal a variety of information on the home, including photos of the inside (current or not), liens and/or past due taxes.


If you want to save money on the purchase of a home, consider a foreclosure.  Start by looking at foreclosure websites to see what's available in your area, talk to an agent who specializes in foreclosures, and get pre-approved for a loan (unless you can pay in cash).  Do a bit of online research to learn more about the home, and hire an inspector to ensure you're not moving into a unlivable space.  You could find yourself in a low priced home that you could turn around a sell for a tidy profit in the years ahead.

Janelle D.

I've worked in the real estate sector for more than a decade and enjoy sharing my knowledge on the subject and researching the latest trends. In my free time I like to craft, spend time with my family and dog, participate in outdoor activities like hiking, and I'm passionate about photography.

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