Are Foreclosure Homes Cheaper?

Are Foreclosure Homes Cheaper

Table of contents

Years ago, buying a foreclosure home was often difficult for borrowers. Whether you were a first-time home buyer or an investor looking to make a profit, finding foreclosures and jumping through the hoops of the application process made them unappealing. However, after the mortgage crisis in the late 2000s, purchasing a foreclosure home has become similar to buying any other home on the market. So, how do you buy a foreclosed home? Are homes cheaper in foreclosure?

Key takeaways

  • Foreclosure is when a borrower fails to meet their mortgage payment obligations and the lender takes possession of the property.
  • Homes in foreclosure are often cheaper than the current market value because the seller is trying to unload the property before losing possession or the lender is looking to move the home quickly.
  • There are five different types of foreclosure sales: pre-foreclosures, short sales, sheriff’s sale auctions, government-owned properties, and bank-owned properties.
  • Pros of buying a foreclosure home include lower prices, faster closing times, standard loan options, and investment opportunities. Cons include as-is sales, potential legal complications, and repair costs.

What does foreclosure mean?

When a borrower takes out a mortgage to purchase a property, the mortgage essentially becomes a lien on the property. A home foreclosure occurs when a borrower fails to meet their mortgage payment obligations on a home loan and enters into default. When this occurs, the lender then seizes ownership of the property.

How does foreclosure work?

Home foreclosure is a process that allows the lender to take possession of the property after payment default. Foreclosure has multiple stages that the lender must follow before taking complete ownership. These steps include:

  • Payment default: The foreclosure process begins when the borrower misses their payment obligations. While default officially begins after the first missed monthly payment, complete mortgage default does not normally occur until after several payments have been missed.
  • A notice of default: After 90 days, the lender sends a notice of default to the borrower (This timeframe can vary based on the lender). This notice starts what is known as the pre-foreclosure stage. During this stage, the lender often offers the borrower a payment plan or other potential resolution to the missed payments before the process moves forward.
  • The lender takes possession: If an arrangement is not established, the lender takes possession of the property.
  • Notice of trustee’s sale: The lender must record an impending sale with the local county and publish a notice in the local newspapers.
  • Trustee’s sale: The home is offered up for sale at a public auction.
  • Lender ownership: If the home fails to sell at auction, the lender becomes the owner.

Are homes in foreclosure cheaper?

In general, homes in foreclosure or even pre-foreclosure are offered at a price that is lower than the current market value. This happens for a variety of different reasons. In the early stages, the homeowners are trying to unload the property before they lose possession, affecting their credit report. During this time, the seller is looking to move the home quickly, and the price is often well below value. After foreclosure and during the auction stage, the sheriff’s office and the lender are not looking to hold onto a home, so the price is often lower than the market value to move the home quickly. This is also the case when the lender takes complete possession.

Types of foreclosure sales

If you are considering a foreclosure property, you need to be aware of five different types of foreclosure sales.

1. Pre-foreclosures

Pre-foreclosure sales occur when the property owner is still in possession of the home, but the lender has notified them of default. The homeowner has the opportunity to sell the home during this time to repay the mortgage lender and avoid the negative impact of a foreclosure on their credit report. These homes are typically listed in the county and city courthouses and are listed as pre-foreclosures.

2. Short sales

After the notice of default to the homeowner, the lender may agree to accept less for the property than the current mortgage balance. In most cases, the borrower must show proof of financial hardship to the lender. When this happens, the seller can list the home as a short sale property for the amount under what is owed on the mortgage and agreed to by the lender. When properties are listed as short sales, they must also list that these sales are pending lender approval. Receiving approval for a short sale can take longer than a traditional mortgage.

3. Sheriff’s sale auctions

A sheriff’s auction sale takes place immediately after the grace period following the notice of default. This auction typically takes place at the local courthouse at a pre-determined date and time. The auction is designed to sell the home quickly and allow the lender to receive their payment quickly.

4. Government-owned properties

If a property was guaranteed by a federal government program, such as an FHA or VA loan, the government repossesses the home. Once this occurs, the homes are then listed for sale through a broker working for the government agency. In order to purchase these homes, you must look for a registered broker through the U.S Department of Housing and Urban Development.

5. Bank-owned properties

If a home does not sell at auction and is not backed by a government mortgage, the ownership of the home reverts back to the lender and is considered real estate-owned property or REO property.

Pros and cons of buying foreclosed properties

As with any type of home buying situation, buying a foreclosure home comes with various pros and cons. When considering a foreclosure home, it is important to evaluate each of these before deciding.


  • Lower prices: As we have mentioned above, most times a foreclosure home is listed below the current market value.
  • Faster closing times: Lenders are looking to recover their investment as quickly as possible, so the purchase and closing process is typically quicker than with a traditional purchase.
  • Standard loan options: Unless specified as a cash-only sale, as long as the home is in a livable condition, you can still qualify for conventional and government-backed loans.
  • Investment opportunity: Buying a foreclosure home under market value and repairing any potential problems allows you to flip the home for a solid profit.


  • As-is sales: Homes listed as foreclosure properties are typically sold as-is, so you may need to budget for repairs and unplanned expenses as the previous homeowners had no incentive to maintain the property’s condition.
  • Squatter’s rights: While the home may be legally foreclosed, if it has been unoccupied for some time, it may have attracted squatters that will require legal eviction before you can take possession. This process can cost thousands of dollars in legal fees.
  • You may not be able to see or inspect the home before purchase: In some cases, interior tours of a foreclosure home are not an option, and you may not really know what you are getting into.
  • May need cash: If you are considering the purchase of a foreclosure home at auction, you will need the purchase amount in cash.
  • Lots of competition: The market for foreclosure homes is competitive, with many real estate investors looking to scoop up a home that they can quickly flip for a profit. This means that available homes often move very quickly.

Foreclosure homes offer another path to home ownership

Foreclosure sales are not just for investors but first-time homebuyers. Hero Home Programs, we work to help individuals and families achieve homeownership, including the purchase of foreclosure properties. Contact us today to learn more about how we can help you move into your dream home.

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

Connect with the Author:

Recommended Posts

What Our Buyers Think

Jules S.
Read More
"5 star service is what you will get when you work with him!ᅠ Not only does he know his product like no other, he makes a special point of communicating throughout each transaction and his follow up skills are unparalleled. Perhaps most importantly, he delivers on his promises!ᅠ Give him a try for your mortgage needs.ᅠ You will not be disappointed!"
Jeremy H.
Read More
"An outstanding job handling refinances.  One of those knowledgeable, straight-shooters - which is really appreciated when you're shopping for a home loan. He can answer a million of questions with ease.  Looking back at the responsiveness, he was outstanding and you can do everything he suggested."
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Eshawn W.
Read More
“By far the best lender we’ve worked with. Got us the best loan amount than any other lender. He worked with us hand in hand, he is professional, and he made the process enjoyable.”
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Cass Z.
Read More
“I called looking for information about the process of applying for a mortgage/refinance and am just blown away with how helpful the information I received was!”
Stephanie F.
Read More
“I have hope because of you for making my home ownership dream come true. I feel such a connection with you and am excited to work with you. Have an amazing day!”
Rachel S.
Read More
"Highly ethical, attentive and helpful! A fantastic combination of personable and hard working. He makes everyone feel important and understood."
Cliff S.
Read More
“Hands down the best mortgage professional I’ve worked with in 20 years. Knowledgeable, honest, reliable and above all an outstanding communicator.”
Jose A.
Read More
"He worked on getting the lowest rate and kept me informed on each step of the process from the beginning to closing. Thank You!"
Nicholas H.
Read More
“Thank you for your prompt help and AMAZING assistance. Hands down, best lender I have ever worked with. Top notch!”
Read More
“I would be 100% interested in working more with you! You have proven to be an amazing lender”
Sandy C.
Read More
“Absolutely the most knowledgeable, friendly and honest expert I’ve ever worked with!”
Steve R.
Read More
"A pleasure to work with. He was very prompt and courteous with his responses and genuinely cares about the clients he works with."
Kevin H.
Read More
"Professional, responsive and honest assistance with the whole refinancing process from beginning to end."

We help you reach home ownership.

No catch. No hidden fees.

Have you served in the military or your community as a healthcare provider, teacher, or first responder? Are you a member of your local union or work for your city government?

Are you looking to buy a home but don’t know where to start when it comes to finding your best home financing options?

At Hero Home Programs™, our teams are dedicated to helping community heroes like you through the home purchasing process by finding the best grants, rebates, and loans in your area in order to maximize your savings and help you achieve homeownership.

Contact our team today to learn how we can and mortgages can change your life.

Resource Guides

Complete A to Z guides on your home purchase journey.

Learn about the process for getting a home loan

What steps you can take to improve your credit score

Tips and tricks for moving into your new home

Your step-by-step guide for buying a new home

Scroll to Top