Even with the slumping economy and falling home values, the actual cost of buying a home still seems steep-especially with celebrities’ homes!  I’ve heard of a few that slashed the selling price by 60%, and the new price was still $3,000,000.  Now that’s obviously not the norm, but some homes may have this same theme—they’re out of your range even with lowered prices.  With this in mind, buying a foreclosed home is absolutely a good idea.  But you have to walk in knowing what you’re doing and what to expect.

A foreclosed home presents a great opportunity.  The previous owner was unfortunately unable to keep up on the mortgage, leaving it available for you at a considerably lower cost.  You have three different windows of time to attempt to purchase a foreclosed home, and depending on your level of homeownership experience and any advisors you have available to help you, one option will work better than the other two for you.

Pre-Foreclosure

Pre-foreclosure may offer the best chance for the greatest price discount, but it’s also the toughest time to get your offer noticed and accepted.  In this case, you would be dealing directly with the current owner, attempting to help them ease through the foreclosure process with a buyer on board and hang onto the equity that has been built into the home.

The problem is that the owner is experiencing a rough financial and emotional time—it’s unlikely they’ll want to talk to yet another person that wants to take their home away from them.  They may be desperately searching for a way to keep the home, or simply too angry and frustrated to be bothered by you.

If you do manage to get an offer in, know that you’ll be competing with experienced investors that typically buy foreclosed homes in order to fix them up and resell them for a profit.  If you’ve done all your research and have the right help, don’t be afraid to hop in.  If you’re buying your first home or are even a little unsure of your negotiating skills, you should stay away from this period.

Auction

Inexperienced homeowners may also want to avoid auction.  The main issue here is that you’re taking a big risk.  You need to make sure you are aware of the home’s true value, and that can be tough—you’re not allowed to inspect the home before you buy it.  You must pay the full price in cash, and you accept the home in as-is condition along with any judgments or liens currently held on it.

Again, if your research determines that you can get the best price on a particular home during auction, you’re encouraged to do so.  If you’re not already fully experienced with foreclosures, make sure you consult with an agent who can guide you through the process.

After Foreclosure

This can be the best option for first-time homebuyers; the process is the most similar to buying a regular home.  The price will still be discounted, and you may even have some wiggle room for negotiation yet since the bank is the new owner and it is hoping to sell the home as quickly as possible.  You can mortgage the house now through the bank, and all of those nasty liens and judgments have been removed.  Be aware of the need for some home repairs, though.  Generally, if the previous homeowners were unable to meet their monthly payments, chances are high that necessary repairs were neglected due to financial reasons.

On a final note, be sure to dig deep to find the right foreclosed home.  If you’re a first-time homebuyer scared away from pre-foreclosure and auction purchases, you may want to search for hidden foreclosures.  A perfect example is a new home that was in the process of being built (not necessarily by the home’s intended owner), may or may not have been fully completed before the loan money was spent, and there weren’t any buyers.  These may not be listed as foreclosures, but they can be found and purchased at discounted prices just to get them off the market.