A foreclosure For Sale sign in front of a home

Whether you are planning to buy a home for yourself or are on the lookout for an investment opportunity, chances are you've considered buying a repossessed property.

These properties, also known as foreclosed homes, are real estate properties seized by banks as their previous owners were not able to commit to their monthly repayments. Since these homeowners are borrowers, this kind of situation sees the banks in the losing end of the line: if the borrower isn't paying back the loan, the bank isn't seeing the benefits from lending the money in the first place. As a result, banks can repossess the property and sell them off in order to recoup any financial losses.

Banks see these properties as unnecessary liabilities. They want to get another sale completed as soon as possible because the longer they hold onto it, the bigger their losses are. Obviously, they are not predisposed to own property – they are in the financial business, anyway.

Purchasing a foreclosed home might seem intimidating to some as they have to deal with banks (again) – but this time, as a buyer and not as a mortgagor. The process doesn't differ significantly from the normal homebuying process, although there are some tiny differences.

Here are some points to remember:

Know where to buy foreclosed homes

Browsing through the pages of newspapers and real estate magazines or simply doing a quick Google search can give you a comprehensive listing of what’s available in the market. Better yet, seek out a real estate agent for some unique opportunities that are not advertised in the papers or the web.

Determine what to do with the property

You should have an idea on what to do with the property, whether it will be used as a family home, rented out to other people, or a property to be resold after some renovations.

If you are going to use it as an investment, calculate how much you plan to spend for repairs or renovations and decide whether it will be a good buy or not. Sometimes, owners tend to overspend in reconstructions without researching whether or not the property’s location is attractive to renters (or another buyer).

This can cause you to spend a lot of money only to end up with an undesirable property.

Do your homework

Research, research, research.

Know everything there is to know about your prospective property, as this will help you decide whether it’s worth pursuing or not.

Especially if you are going to use it as an investment, you have to take note of its location (if it can be sold quickly) and its value (if it is in line with the current market). If there are a number of properties being sold in that area, it might be best to look for opportunities in other states, as it could mean that the market is experiencing difficulties in that area.

The current market dictates the value of the property. You might end up getting a good deal when the market’s doing fine, but if it is in a downturn, you can score a real bargain. Know the kind of properties sold in the neighborhood and their market value, so you will have an idea on the price range and gauge how much you are willing to spend.

A mortgage lender should have your back

As banks auction off repossessed properties to the highest bidder, it is recommended to have your finances checked and set before you start bidding. Otherwise you risk losing the property to someone else, as banks are in a hurry to recover what they have lost, so they want to conduct business with buyers with finances and papers in hand, ready to go.

Do not bid with your heart on the sleeve

Sometimes, an auction can trigger emotions to customers who are passionate about the property being sold – it may be their dream home, or a potential pot of gold in terms of a real estate venture.

However, it is best to fend off these sort of sentiments towards a property and consider it dispassionately. A subjective perspective while on an auction can get you into trouble, and lead you to bid well above your means.

Always stick to your plan and budget. If you feel like you are incapable of handling the stress, you can always hire a professional to do it for you as he/she can be relied upon to have an objective mind. It will cost you a decent amount of money, but nothing compared to the thousands you could save down the line.

Inspect every corner of the house (and expect to take out the bill)

There’s nothing wrong in expecting that the home or property might be in a bit of a shambles when you buy it. After all, if the previous owner was not able to stay on top of their mortgage payments, it's reasonable to presume that they weren't on top of repairs and maintenance.

As a result, you'll have to take a keen look at everything involving the property. Check for any damages that needs fixing in pipes, ceilings and other structures and utilities; look out for pests that might be making their abode in nooks and crannies; see if there are fixtures that need to be replaced like cupboards and closets, among many other inspections.

Be ready for surprises and have your wallet ready. You should expect to set aside some money for any repairs or renovations.

Be ready to settle quickly. Often, buyers cannot negotiate on the contract once they chose to buy a repossessed property, as banks dictate the contract’s terms and conditions.

As a result, the settlement period can be shorter than expected. Make sure to have your solicitor on top of things to avoid paying for penalty fees.

It's also important to remind yourself not to feel guilty that you are buying a property that once belonged to someone who lost the ability to pay for it. After all, if you don't purchase it, someone else will.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
Principal & Interest
Featured Online ExclusiveUp to $4k cashback
  • Immediate cashback upon settlement
  • $2000 for loans up to $700,000
  • $4000 for loans over $700,000
5.95% p.a.
5.95% p.a.
Principal & Interest
5.99% p.a.
5.90% p.a.
Principal & Interest
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .