Buying any home can be a lot of stress, but worth it when you get the home you want, and even better if you get a great deal. Many people think foreclosures are always the best deal - I really don't. Let me explain:
When you buy a foreclosure, it is "AS IS, WHERE IS", meaning, you have no recourse if you find something seriously defective after closing. Most defects could be discovered during inspection, and sometimes the seler will compromise if the repairs are substantial, but many times, they really do not care. They'll sell it to someone sooner or later...
Short sales, or Pre-foreclosures, can be a really good deal. Typically you are buying as is as well, but you are buying the home from an individual, not a bank, so the disclosure laws are in place. Granted, the seller may have no money, but getting out of the contract if you need to is much easier.
In any case, the "Secret" to getting a great deal on a great home is have a GREAT Realtor. I have been helping folks buy and sell homes for over 14 years, and I have over 700 happy homeowners as past clients! I would love for you to become one of my happy past clients too!
Give me a call or email if you have any other questions!
You have been given some great responses to your question. I will only add one tiny thing and that is you REALLY do need a Realtor on your side that not only knows how to guide your through the process, but also is strong willed enough to get you the deal you want!
Just last month, I was able to get my clients a foreclosure at a price most did not believe would work... took me 2 months of constant bugging on my behalf to finally get the bank to work with us. Also, I encouraged my investors to take one last look at the property before we closed (even though EVERYONE says all foreclosures are "as-is" and they WONT revamp anything once you're under contract). Sure enough, they found a water leak that could have been costly... we came to the bank w/ our solution and we got them to give us a cash equivalent credit of the repairs needed and got the house at a much better price! It all can be done in Real Estate, you just need someone on your side that refuses to hear a NO and turns it into a YES!
The biggest part of buying a foreclosure is dealing with the bank or HUD. The advice below on getting pre-approved is very critical and I couldn't agree with making that your first step anymore. After that, it all depends on the property and how you want to proceed.
If the home isn't in the foreclosure process, but the sellers are worried they are heading in that direction (late with payments and/or "upside down" on their house - owning more than they can sell it for), they can attempt a short sale. Basically, they ask the lender for approval via an agent and the bank agrees to the idea, but waits to see what the offer is. When a buyer submits an offer, the banks then consider it and approve it or not. Short sales take a lot more time and attention as the bank is trying to get the most out of the transaction as they can. There is often a longer waiting period for responses, so please allow time for that.
If a home has been foreclosed, then there are several paths. The bank can take possession and hold on to the home or they can auction it off. Auctions are a tricky process if you don't know what you're doing and I recommend you don't do them unless you're a savvy investor. If the bank is holding on to the home and trying to sell it, they will take a similar route to the short sale. A lot more time and paperwork. You should do your homework with your agent and know exactly what you're buying. Foreclosures come "as is" and exempt from Seller's Disclosure, so there may be problems that you are buying with the house. Inspections will help alleviate some of the stress. If the loan was a FHA loan, then the home is what's called a "HUD home" as Housing and Urban Development has taken possession (as opposed to a bank). These are similar as well in the fact that the response time is slower and there is more paperwork involved. A good agent can guide you through any of them though, don't let me discourage you. Just be sure your agent is knowledgeable, hard working, and on your side to navigate through all of it.
Good luck and if I can be of any assistance, please feel free to contact me.
There are a few avenues in buying a foreclosure. First and most importantly is getting preaproved for a certain loan amount. There is a site Southwest alliance that posts these homes. I have included the link for HUD homes. There is also a list most agents get from title companies that is another avenue for foreclosures and up and coming foreclosures. Make sure you deal with an agent that is familliar with the process. Please feel free to contact me if you need any further help with this and we can go over this in more depth.
Prudential Classic Realty
Our recommendation is to get preapproved before you begin looking for property. This will accomplish a couple of things. First, it will help you identify your financial limitations and secondly, will allow you to respond quickly when you identify a property you want to make an offer on.
Most banks require a deposit and a letter of pre-approval to accompany an offer. A real estate professional can best advise you and walk you throught the process.
I agree with all of these answers. One thing I would add that I always tell my clients (who are not investors) is to have the home inspection done before making an offer. Typically, the home inspection takes place after the offer is made and the contract is then contingent upon the home passing the inspection. However as these professionals have answered, the bank owned homes or foreclosures come "as-is". Many buyers of these foreclosure are first time home buyers in my area so to alleviate the worry of "what happens if I find something later" situation, I refer my clients to a reputable home inspector who will inspect the property for them and give them a full report on the homes condition. The inspection is just for their own knowledge and most likely they will not be able to go back to the bank and tell them to fix anything but at least they will know if the home is structurally sound and habitable. The only negative side of getting the inspection done before making the offer is of course the buyer will be out the $400+ for the inspection if they do not buy the home. In my eyes though, a $400 home inspection is a cheap way to alleviate the hundreds of thousand dollar risk on a home investment. Good luck to you!