#2. If you are getting a loan you likely will not be able to purchase at the trustee sale.
This due to the winning bidder normally needing to pay cash within a couple of hours.
#3. You can buy an REO which is bank owned property they bought back at auction and put back on the market.
You can still try to get a property prior to the actual foreclosure auction by the trustee. If you know that a property will be foreclosed, take an offer to the owner that will pay off the loan. No, it won't be as good a deal as buying the REO later after foreclosure.
Your offer could be below what will pay off the loan -- this is referred to as a short sale, because the proceeds are short of the loan balance.
Many properties, not all, that will be foreclosed are listed at attractive prices by Realtors. The Realtor should get advice from the mortgage company what price range will be accepted if below the loan balance. Banks are more flexible these days in such cases, if they have independent verification of the current owner's financial predicament and independent verification of the market value of the property when sold in distress. These confirm the likelihood of foreclosure and likely sales price after foreclosure.
Banks don't really want another REO that they have to sell, especially if you will buy above their cost to hold it in inventory.
Ask your Realtor to give you some listings that fit within your budget, and then make some offers. You must be prepaired to close in a couple of weeks. Most lenders can accommodate you on that.
Your budget should be backed up by a pre-qualification by a loan officer.
Just to be clear on this -- even if you were pre-approved for a loan, you cannot buy from the Trustee except with cash or what we call "good funds", which includes cashier's checks and money orders. The Trustee never owns the property. Prior to the foreclosure you deal with the current owner and his bank if a short sale. After the foreclosure, you deal with his bank through whichever Realtor the bank uses to list REO properties.
So, yes, get pre-qualified.
If you want to purchase a foreclosed REO, you will have to submit proof of funding with a contract. Pre-Qualifying letter is required along with a contract.
If you are looking to purchase a home through a Trustee Sale on the courthouse steps, you will need CASH (cashiers check) to purchase the home.
Buying a home AFTER it has been foreclosed on is pretty much like a normal real estate sale, with the difference of being sold AS-IS.