Buying foreclosed homes: financing options can be confusing

When buying foreclosed homes, financing options are roughly the same, on paper, as when buying any other home. You can self-finance, get a mortgage from a bank or mortgage company, or use a home equity loan from your current property to finance a second one.

shutterstock_237968428For a foreclosed home sold at auction, you’ll need cash on hand to buy the home. You’ll need to be pre-approved for a mortgage and you must either have good credit or be eligible for a government mortgage guarantee program.

Using cash to buy foreclosed homes as your financing option might seem the best option in a depressed market, but it’s not necessarily. While you won't have to worry about payments or interest, you do give up the tax benefits associated with having a mortgage. Additionally, you may have to pay for an appraisal and inspection out of your own funds and not be able to finance those costs. Often, a lender does this for you using contractors whom they can trust.

Using a loan to buy foreclosed homes as your financing option also has advantages and disadvantages. If you have great credit, a loan will greatly extend your buying power and increase your housing options. Loans do slow down your closing, so the slower pace could cause you to miss an opportunity if the property has several potential buyers.

A third option for financing and buying foreclosed homes is using government FHA or VA guaranteed loans. If you're eligible for either of these, you can use the 203(k) financing option for distressed properties when you finance a foreclosed home.


The 203(k) financing option allows you to borrow not only enough to rehabilitate the house or convert it to a multi-family dwelling. Rules governing this sort of government financing are somewhat complex. Since these loans originate from a lender and are guaranteed by the government, ask your lender about specific questions you have about these kinds of loans.

When buying foreclosed homes, financing options can be confusing. RealtyNow can help you find foreclosed homes, the perfect lender and help you make the right decision for your needs and budget. To look at listings of foreclosed homes in your desired area, enter a zip-code above.