Answer 1 of 2: The Differences between Pre-Foreclosures and Foreclosures:
Pre-Foreclosures can be 2 different things. Either a Short Sale - where the Seller's lender is going to allow them to sell the home for less than what is owed on the home. Or, the Seller knows they are in trouble, have not tried the short sale route, and are just selling the home as fast as they can. Most will call that a Distress Sale. It has not foreclosed yet, and the seller is willing to wheel and deal.
Short sales have a few little quarks - First, they may take a long time. I see them average between anywhere between 4 to 6 months to close. Some may take even longer. This is because, once you make an offer, there is a process with the bank that can take quite a while. You may have very few employees at the bank working hundreds of homes all over the country. You make an offer, and several months later, they either accept or decline the offer. Once the bank agrees on the final terms, then things tend to go pretty fast. (As fast as it take for your to either get your loan processed, or how fast it takes for you to fund a cash buy)
Other quarks: 1 - If the home is a short sale, the seller doesn't have much money to play with. If they did, the home wouldn't be a short sale. Which means, in most cases, the seller is not really financially able to cover repairs that the home might need. Thus, you will see most short sales as "As Is" sales. If you are doing an FHA or VA loan, you may run into the old "Lender Required Repair" issue. If the appraiser that does the appraiser sites that the home will require repairs... you may find yourself in a situation where you will have to make repairs to a home you don't own yet. Risky business! But that is another blog worth of info right there.
2 - Some Short Sales will require more money out of pocket for you to get them financed. Some banks will not allow the seller to help with the buyer's closing costs, or will limit the amount they will allow. This leaves the buyer to cover their own closing costs, which can be anywhere from 2 to 5% of the sales price.
In the vast majority of cases I have had where my buyer bought a short sale, the process was long, they needed a little more money out of pocket than they would have needed on a regular sale, but at the end of the rainbow was a "Good Deal" on a home. It's not a bad way to go over all if you have the time and the home fits what you are looking for.
Foreclosures: The home belongs to the bank, mortgage company, or corporate lender. There are several different brands of Foreclosures. Bank REOs, Hud homes, VA Foreclosures, Fannie Mae & Freddie Mac foreclosures, and Local Bank Foreclosures. Each of these has little quarks to them.
HUD Homes - These are homes that were purchased by someone using an FHA loan. The owner defaulted, and the home was foreclosed - HUD will offer all kinds of neat things sometimes. Everything from $100 down programs, to homes being sold WAY under market value. Depending on the condition of the property, you can finance these homes using and FHA, VA, Conventional, or in some rare cases, an Texas Vet home loan. If the home is "Insurable with Repair Escrow" - that means that even though the home needs repairs, you can still do an FHA loan, and finance in the "lender required repairs" as estimated by the appraiser. Your FHA lender will be able to fill in the details of how all that works for you. If the home is too beat up that it is not FHA insurable, than you can only either pay cash, or get a conventional loan.. which usually means more money down. In most cases, lenders require a 20% or more down payment on a home where the condition is rated at Below Average, Fair, or worse. You will have to get with your lender to see what their criteria is on "Fixer Upper" homes.
VA Foreclosures - In most cases, these homes are in pretty good shape. Sometimes VA will have them fixed up to qualify for FHA or VA Financing. (Not in all cases) Some of these homes offer VA Vendee Financing. This is a pretty cool program. It looks and smells like a VA loan, but you don't have to qualify for VA to get the loan. They usually take about 2 months to close, but you wont need a whole lot of money out of pocket. If you don't use the Vendee loan, then the normal qualifications for lending apply. VA Foreclosures DO NOT HAVE AN OPTION PERIOD.. translated into English, you don't have a "free look" period to do a home inspection. They expect you to check the home out prior to making them an offer. So beware of that little quark before you contract on a VA Foreclosure
Fannie Mae & Freddie Mac Foreclosures - Some of these can be quite the deal! Freddie Mac offer a "HomePath or HomePath Renovation Loan" on their foreclosures that can be as little as a 3% down payment. In some cases where the home needs work, the Renovation Loan will finance the fixes for you.