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Can You Buy A Foreclosed Home With An FHA Loan?

Apr 10, 2024



FHA loans, short for Federal Housing Administration loans, are government-backed home loans that can come in handy if your credit scores and cash reserves are on the lower side.

You may be out house hunting and discover a foreclosed property that piques your interest. Can you use an FHA loan to purchase it? In short, the answer is yes! Let’s take a closer look at how you can buy a foreclosed home with an FHA loan, as well as the pros and cons.

Can FHA Loans Be Used For Foreclosures?

Yes, you can buy a foreclosed property with an FHA loan – as long as the home is in livable condition, meaning it can pass FHA appraisal requirements.

However, using an FHA loan as a means to purchase a foreclosure may create other difficulties that can put you at a disadvantage if you’re competing with all-cash buyers with no appraisal or inspection concerns.

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Pros And Cons Of Using An FHA Loan To Buy A Foreclosure: At A Glance

Pros Cons
Low down payment Sold as is
More lenient credit score requirement Must meet livability standards
Less cash reserves needed More competition
Discounted home prices Slower sales process 

What Are The Pros And Cons Of Buying Foreclosures With An FHA Loan?

As with any other form of real estate financing, there are both advantages and disadvantages of using an FHA loan to buy property foreclosures. You’ll find several of the most common upsides and downsides of FHA foreclosure buying outlined below:


  • Low down payment: FHA loans generally come with low down payment requirements attached, as low as 3.5% down.

  • Less cash reserves: Depending on your lender, you likely won’t need a significant amount of money saved up as cash reserves to qualify for an FHA loan.

  • Easier credit requirements: Borrowers with a more limited credit history and a credit score as low as 580 can qualify for a mortgage. Borrowers with an even lower score of 500 can also qualify with a down payment of 10% or more.

  • More affordable home prices: Foreclosed homes typically come with a lower price tag, since the financial institution selling the property is trying to find a buyer as quickly as possible.


  • Homes are sold as is: Be advised that foreclosure properties are sold as is, meaning the current owner – the original mortgage lender – will not undertake repairs or provide any warranties as to the condition of the property. Note that this means buyers are responsible for all needed repairs and maintenance on the property.

  • Bargains mean competition: Unfortunately for potential homeowners, the prospect of real estate bargains can attract investors … and in swarms. Many of these competitors will be seeking to buy with all-cash offers, which makes any other offer – including financing of any kind – less competitive.

  • Slower sales process: Because of their eligibility requirements, and the extensiveness of the qualification process, FHA loans can also be slower to process than conventional loans, from application to closing.

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Where Can You Find Foreclosures For Sale?

On the hunt for a foreclosure? We don’t blame you: It’s often a great way to score a bargain on a piece of property that has tremendous potential. Conveniently, you can find foreclosures posted for sale on most major real estate listing sites.

Other avenues through which to find foreclosures to buy include browsing through the HUD Home Store, Fannie Mae’s HomePath and Freddie Mac’s HomeSteps.

What If The Foreclosure Doesn’t Meet Livability Standards?

Is the foreclosure you’re considering not suitable for human habitation quite yet? This doesn’t have to be a dealbreaker. As it turns out, the FHA also offers loans known as FHA 203(k) loans that can be used to fund both the purchase of an unlivable home and the renovations needed to make it livable. Obtain one, and you’ll have virtually everything you need to get started hammering and sawing your dream home out of an old fixer-upper.

Rocket Mortgage® doesn’t offer FHA 203(k) loans at this time.

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The Bottom Line: An FHA Loan Can Help You Buy A Foreclosure

FHA loans can help with the purchase of foreclosures. At the same time, the foreclosed property you’re considering must also be livable. Using an FHA loan can also put you at a competitive disadvantage when stacked up against all-cash buyers.

If the home you’re thinking about purchasing isn’t livable, you’ll need to consider leveraging an FHA 203(k) loan as an alternative.

Many satisfied home buyers already turn to FHA loans as a helpful means through which to finance the purchase of foreclosed properties every year. Take action, and start your FHA loan application today. Our online application process is always open. You can also give us a call at (833) 326-6018.

Headshot of Molly Grace, journalist and staff writer for Rocket Mortgage

Scott Steinberg

Hailed as The Master of Innovation by Fortune magazine, and World’s Leading Business Strategist, award-winning professional speaker Scott Steinberg is among today’s best-known trends experts and futurists. He’s the bestselling author of 14 books including Make Change Work for You and FAST >> FORWARD.