In addition to the great info already provided by my real estate colleagues, home buyers may be able to get deals on foreclosures, which are often discounted in price, but buying foreclosures can be risky. It's essential to understand the pros and cons of buying a foreclosure before making a purchase.
First of all, there are several types of properties that are generally known as "foreclosures." A "pre-foreclosure" is a home which is in danger of falling into foreclosure, but is still owned by the homeowner. A "foreclosure" is a property that will be sold or repossessed by a creditor or a lender to recover the amount owed on it.
While pre-foreclosures are available for purchase from a homeowner, foreclosures can be bought at auction or as "bank-owned properties" (also known as "real-estate owned" properties) from a lender.
Pros of buying a foreclosure: You may be able to purchase a home at a lower-than-market-value price. If the home is in pre-foreclosure, the homeowner is looking to sell the home to avoid going into foreclosure. These homeowners are usually in a hurry to sell, putting buyers at an advantage.
Banks are sometimes willing to offer foreclosures at a discount -- the longer they hold these properties, the more it costs them in terms of taxes, maintenance, etc.
Foreclosures can be found at all sorts of price points (starter homes, luxury homes, etc.) and sometimes are only in need of minor repair or upgrades. With some sweat equity, repairs and upgrades, a homeowner can turn a foreclosure into a home and see some appreciation in the property's value.
Cons: Since foreclosures are often offered at significant discounts, you may face steep competition and bidding from other buyers.
However, foreclosures aren't always offered at a large discount. Homeowners in the pre-foreclosure stage may price a home higher than it is worth in the hopes of paying off a mortgage, taxes, etc. Banks are looking to recoup at least what's owned on the house, so they may only offer a slight discount.
If you are buying a foreclosed home at an auction, you may have to pay cash (the same day!) and may not be able to inspect the home before purchase.
Some lenders don't offer loans for distressed properties.
Foreclosures may need serious and costly repair. The previous owner might not have been able to afford fixes for the property and may have allowed it to fall into disrepair.
Many, not all, Foreclosures are often vandalized and looted; it's not uncommon to find major appliances missing, holes kicked in the walls and other vandalism.
Foreclosures tend to sit vacant for periods of time, which causes major maintenance issues. If a home is not maintained, its pipes could freeze, vermin and bugs could settle in and mold could grow.
You need to do your research -- a foreclosure can have liens attached to it. You may find yourself having to pay costly old debts associated with the property.
Foreclosures often are sold as is and banks often aren't interested in making or footing the bill for repairs.
At times, foreclosure buyers have to start eviction proceedings and pay legal fees to get the previous tenants/owners out of the home.
Purchasing a home from a lender can be a lengthy and time-consuming process that's full of red tape.
Don't let this scare you, the bottomline is to do thorough research before proceeding; I am sure there are many happy stories of success foreclosure purchases.