Buying a foreclosed home can be a good way to score a deal, but it comes with risks. Here's what to do to make it less of a gamble.

Buying a foreclosed home can be a good way to score a deal while hunting for real estate. A foreclosure is a house whose owners were unable to pay the mortgage or sell the property. As a result, the real estate lender assumed ownership and is now trying to sell it to recoup some of its costs. While foreclosure isn’t as common today as it was during the height of the real estate crisis in 2008, it does still happen. Currently, according to RealtyTrac, 1 in 13,000 homes ends up in foreclosure. In states with the highest foreclosure frequency, such as Maryland and New Jersey, that ratio is 1 in about 550 homes. That’s a lot of foreclosed homes.

While foreclosure is hardly a pretty story for the home’s previous owners, it can be a bargain bonanza for buyers. Since banks are often eager to unload these foreclosure properties, they aim to break even with an asking price that’s typically the sum of the remaining mortgage note plus interest, lawyer fees, and penalties. On average, this ends up totaling about 15% below the home’s actual value—and if you want to buy a foreclosure, you’ll find it often sells for less than asking price. But buying a foreclosed home does come with risks, so buyers should proceed with caution to see if the gamble is worth it.

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Learn More about the home buying process: "Home Buying 101: How Do I Get Started?"
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