Feverpitched//Getty ImagesBuying a foreclosed home can be a great way to purchase a house at a discounted price, whether youre looking for a primary residence, a second home, or an investment property. But there are risks to consider if you're seriously considering one, plus, navigating the foreclosure market requires quite a bit of research and preparation. This guide on how to buy a foreclosed home is a great place to start. We've tapped real estate experts for insights and will walk you through what foreclosure means, the different ways to buy a foreclosed home, and the steps you need to take to purchase one. Here's what you need to know.Related StoriesWhat Is a Foreclosed Home?"When a homeowner falls behind on their mortgage payments, the lender may initiate foreclosure, a legal process where the lender attempts to recover the outstanding loan balance by selling the property," says real estate investor Rich Kaul, owner of 702 Cash Buyers.Typically, homes enter foreclosure after four missed mortgage payments, though this number may vary by state. At that point, the lender will issue the homeowner a Notice of Default (NOD)now, the house is in pre-foreclosure, but not yet foreclosed. The homeowner then has a chance to make those payments before the lender moves on to the next step in foreclosure."Once the foreclosure process starts, if the seller is unable to catch up and bring their mortgage current, the lender will soon set a sale date for the property to be sold at a trustee sale, which is a courthouse auction," says licensed realtor Casey TeVault, owner of Casey Buys Houses. "This typically happens around the six-month mark of being delinquent. If the property doesn't get sold at trustee sale, then the property is considered 'foreclosed' and becomes a real estateowned (REO) property."Related StoryHow Can You Buy a Foreclosed Home?The process for buying a foreclosed home depends on where in the foreclosure process the home is. There are three main ways to buy a foreclosed home.Buying a Home in the Pre-Foreclosure Stage"The best way to buy foreclosed homes is during pre-foreclosure. When the homeowner receives a NOD, it's best to try to reach out to that homeowner before the auction date," says Kaul. "You typically have more flexibility because you can structure a purchase directly with the owner to come up with a solution to save them from being foreclosed on."Buying a Home at a Foreclosure AuctionAt a foreclosure auction, you'll be bidding against others, and you'll likely have to purchase the home in cash. You may not have a chance to appraise or inspect the home before purchasingit'll be sold "as-is"and it might have liens on it (i.e., a legal claim made by a creditor on a homeowner's property) that would become your responsibility until the debt is paid off or settled. Though there are some risks involved. That said, you could score a huge deal.Buying an REO HomeREO homes, which are fully foreclosed homes now owned by the lender, can be purchased in a fairly standard manner "with more traditional financing options," says Kaul. The price may still be lower than market value, as the lender may hope to recoup their losses quickly.Related StoryPros and Cons of Buying a Foreclosed HomePurchasing a foreclosed home can come with high risks, but also high rewards.ProsPrices are usually lower than regular-sale homes. This might allow you to buy in a neighborhood that might otherwise be too expensive for you.There's potential for a high return on your investment if you renovate the property and sell it.ConsMost foreclosed homes are sold as-is. "Foreclosed homes usually have neglected upkeep and can be costly to repair," says TeVault.Some foreclosed homes have liens against them, and you could be responsible for them.You might not be able to inspect the property before buying it, which is inherently risky.Cash buyers are often preferred to those seeking financing. Some lenders may be hesitant to finance a foreclosed property.The bidding process can be extremely competitive.Related StoryStep-by-Step Guide to Buying a Foreclosed Home1. Set your budget.This should always be the first step in the home-buying process, no matter what type of home you're looking to buy. Consider details like property taxes, insurance costs, and the price of renovations to determine affordability.2. Get pre-approved for a mortgage.Though cash is king in foreclosure deals, it's a good idea to get pre-approved for a mortgage, which can help you understand your budget even better.3. Find a real estate agent.Having a licensed real estate agent on your team will almost certainly make navigating the home-buying process easier, especially when it comes to foreclosed homes. It's even better if you work with someone who has experience with foreclosures.4. Start your search for foreclosed homes.Some foreclosed homes are listed online, while others can be found on public auction websites. Your real estate agent can also help you find foreclosed homes.5. Do your research on any potential purchases."Due diligence is crucial," says Kaul. "Buyers should conduct title searches, home inspections where possible, and research liens or unpaid property taxes."6. Make an offer or place a bid at auction.The offer process varies depending on the type of foreclosure:Pre-Foreclosure: Make an offer directly to the homeowner.Auction: Place your bid according to the auction rules.REO: Submit a traditional offer through the listing agent.7. Secure your financing.If you're not buying in cash, finalize your mortgage to get your financing in order.8. Get a home inspection.While home inspections aren't always possible when buying a foreclosed home, try to get one if you can. This way you'll know what work will need to go into the home to bring it up to code and make it livable.9. Close the deal.There's a lot of paperwork to sign at a closingand there are also closing costs to consider.Related StoryFrequently Asked QuestionsHow does buying a foreclosed home differ from buying a regular-sale home?"The main difference is when you buy a home that is foreclosed, the seller of the property is a bank and not an individual owner," says TeVault. But note that's for REO properties, which are ones that are truly foreclosed. If a home is in foreclosure, but not yet foreclosed, the process varies. It could be pretty similar to a regular sale if you buy the home in pre-foreclosure, while auctions provide a vastly different experience.How do I find a foreclosed home for sale?You can find foreclosure listings through several sources, including:Bank websites with REO listingsGovernment agency sites like HUD.govReal estate listing sites with foreclosure filtersCounty courthouse recordsPublic auctionsIf you have a real estate agent, they can usually also provide access to foreclosure databases.Do I need to buy a foreclosed home in cash, or can I get a mortgage?It all depends. Cash is often preferred, but it's possible to get a mortgage, too, especially if you're purchasing a home in the pre-foreclosure stage or an REO home. That said, it's not a guarantee. "Expect that not all foreclosed homes you see online will qualify for financing," says TeVault. "If the condition doesn't meet lending requirements, a cash purchase or hard money will be required."Do I need a real estate agent to buy a foreclosed home?Technically, it's not necessary, but it can be very helpful. "Partnering with a real estate agent or investor who specializes in distressed properties can help navigate potential pitfalls," says Kaul.Follow House Beautiful on Instagram and TikTok.