The housing market has been bonkers for long enough that some of us have lost all hope of ever owning a home. One possible alternative, though, is searching for a foreclosure: a property the lender has repossessed from a borrower who missed a certain number of mortgage payments and defaulted on their loan.
Upon foreclosure, lenders turn around and sell the home at auction, and the price is often close or equal to how much was left on the mortgage. This means a foreclosure can be be cheaper—but not always. Some foreclosures are sold at market value, and plenty are in disrepair.
But if you’re willing to navigate the foreclosure process, you may be able to snag a deal you wouldn’t find on the regular market.
How foreclosures work
There are two categories of foreclosure: judicial and non-judicial. To put it simply, a judicial foreclosure occurs when the mortgage lender files a civil suit against the borrower, and a judge rules that the lender can sell the property at auction. In a non-judicial foreclosure—allowed in certain states when the mortgage includes a power of sale clause—there’s no court order.
The judicial foreclosure process looks a bit different in every state, and there are a handful of institutions that can foreclose on a property. Banks are the most obvious, but counties can seize homes from owners who failed to pay property taxes, and the IRS can take property for failure to pay income taxes. The U.S. Department of Housing and Urban Development (HUD) can foreclose on borrowers who default on Federal Housing Administration (FHA) loans, and homeowners associations (HOAs) can foreclose for failure to pay dues.
Again, in general, foreclosed homes are put up for auction once it’s determined that the borrower cannot catch up on payments. But you may also find listed homes in pre-foreclosure—the ball is rolling but the process isn’t complete. Some pre-foreclosure homes are put up for short sale, meaning the lender is allowing the borrower to sell the property for less than what they still owe on their loan.
How to find foreclosures
Foreclosures aren’t necessarily listed the same way as regular homes for sale. Here are a few places to look:
Bank websites: Banks may list foreclosures online or at least give you the option to narrow your search of their available properties.
HomePath.com and HomeSteps.com: These sites list homes foreclosed by Fannie Mae and Freddie Mac, respectively.
Zillow: Once you enter your address or zip code, go to For Sale > Foreclosures to narrow your search.
Redfin: Toggle open More Filters > Show More (under Listing Status) and select MLS-Listed Foreclosures and Foreclosures.
Real estate agents: Some real estate pros specialize in or at least have experience with foreclosures.
Public records: If you’re willing to do a little bit of digging, you may be able to find the legal documents indicating foreclosure—a Notice of Sale, lis pendens, or Notice of Default—through your county recorder’s records.
How to buy a foreclosed home
To buy a foreclosed home, you need to be ready for things to move fast and be willing to give up some of the safeguards of a traditional sale. For example, you may need to have cash for the deposit plus the sale, as you may not be able to get a traditional loan quickly enough to use at auction. Plus, typical contingencies, like home inspections and financing, may not be allowed, and foreclosures are often sold as-is, regardless of the condition.
Keep in mind that you may not have as much information about a foreclosure as you would about a home purchased through the regular buying process, so going this route always comes with some risk. A foreclosure is still a huge investment and not one to take lightly. However, if you have the resources, time and interest, it may be a worthwhile alternative.