I've been helping First Time Buyers for 22 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.
Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.
For Short Sales, my attitude of late is that First Time Buyers should steer clear. Short Sales tend to be a better deal for the homeowner than for the Buyer. You'll wait MONTHS for the homeowner's Lender to approve the short sale; maybe as long as Six or Seven Months. Meanwhile, you're stuck in a contract to buy that home. I closed a short sale recently with a Buyer who, after seven months said this at the closing table, "I don't even want this house anymore."
And he didn't even get the "deal" on price he thought he was getting! The house appraised for only slightly more than he paid for it at the short sale price. He walked into this deal thinking he was buying a home for $100,000 less than it's value. In the end that wasn't the case.
There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay. It's a Buyer's Market, after all!
You do not necessarily need to finance your purchase with a different type of loan or more money down. However, it does help to be flexible.
Currently, in the bay area, the market has really been lit on fire. There is limited inventory, and buyer usually find themselves in a bidding war for property. Therefore, the market dictates the terms and prices for properties.
If you're already pre-approved for an FHA loan, that tells me you've already taken the first step! The next step, is to work with a local Realtor, who can meet with you, discuss your needs and wants; and then start a plan to search for the right home.
It can be a challenge to buy in this market, but it's definitely worth the effort! Record low interest rates, and home prices still way below the market highs.
I'm local. If you care to chat, just click on my profile and/or website and give me a ring. Would love to help.
Additionally, I have a webpage with Foreclosure Listings neatly organized and easy to search: http://www.calpacbrokers.com/foreclosure-listings/
A home that was foreclosed by the bank is no longer called a foreclosure, it is more properly called a bank owned home or a REO (real estate owned) home. The bank that now owns it will list it for sale with a Realtor who lists it for sale and any Realtor can show it to you and sell it to you. Some bank owned homes are in such poor condition that FHA will not loan on it, so just get your Realtor to show you ones that can get a FHA loan.