How Much Money Do You Need to Buy a Foreclosed Home?

A foreclosed home can save home buyers a good deal of money compared to traditional sales. The amount you can save on a foreclosure depends on where you're interested in buying, the property's condition and the type of financing you obtain. When financing a foreclosure, you'll need money for a down payment, closing costs and repairs if the home is in poor condition.

The Basics

A study by real estate website Zillow.com showed that in 2013, the average national discount on foreclosed properties had dropped to 7 percent. A generous discount on a foreclosed property is approximately 20 percent and was more frequent after the housing market collapse of 2007 than it is today.

Down Payment

Buyers typically must contribute a minimum amount of their own cash to buy a house, known as the down payment. Lenders typically require 3.5 percent to 20 percent of a foreclosed home's price as down payment. Mortgages backed by the Federal Housing Administration (FHA) require the lowest down payment, whereas non-government-backed conventional loans require at least 5 percent down. Veterans and certain members of the military as well as buyers in specific rural areas of the country may qualify for no-down-payment loans through the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA).

Closing Costs

The total amount of closing costs varies by location. As of 2012, buyers in states with the lowest costs paid an average of approximately $3,000 on a $200,000 home loan. In the most expensive states, closing costs ranged from approximately $4,500 to more than $5,000 for the same loan amount. These costs include lender fees, or points, title insurance and appraisal fees. Closing costs increase with loan amount and additional services such as escrow and prepaid property taxes, mortgage interest and homeowners insurance. Banks may be willing to cover buyer closing costs on a foreclosure, generally up to 3 percent of the sale price.

Considerations

Buyers must consider the amount of money it takes to bring a foreclosed home up to livable standards. After being abandoned, vandalized or neglected by financially distressed occupants, some foreclosed homes are uninhabitable by lender standards. Most lenders require repair of health, safety and structural issues as a condition of financing. As such, the buyer, seller or both may have to divide the cost and perform repairs before the close of escrow. An appraisal report and home inspection, which cost $300 to $500, indicate key defects in a home that needs repair. Comparing contractor bids or estimates of the work can help save money on repair costs.