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!
Have done a few and won't do anymore. Too much hassle, headache, stress and money involved.
There are a few different scenarios for buying houses in foreclosure. Some houses in early stages will be sold by the owner and an agent in a "distress" sale. Some homes have been repossessed and are sold at auction.
If you decide you want to try to buy a house at auction, you must do your due diligence in advance of the sale. In many cases, you will not be able to set foot in the property prior to purchasing it. And you must have your financing in place - not so easy to do in our current mortgage market. But if you have cash, and don't mind buying sight unseen, you can pick up some good deals.
A distress sale may be a better option. A buyer's agent can keep track of the market for you, and inform you when homes in early stages of foreclosure come on the market. If you'd rather go it alone, Realtytrac is a good resource for monitoring foreclosures - there's a fee to subscribe, though. Of course, I'm a big fan of letting us real estate agents earn our commissions by doing the research for you!