There are many topics that buyers should consider before buying a foreclosure. You won't receive a seller disclosure so it pays to ask questions and get answers before you jump into the buying arena.
What's the first step buyers need to take?
Talk to the bank, get pre-approved.. If you are thinking of buying a foreclosure as an investment or second home, understand that financing the home can be more difficult. Investment/second homes may be tagged with a higher interest rate and require a higher down payment. Talking to your money source upfront is a savvy buyer move. Be clear that banks will not cooperate with contingent offers. Get your finances lined up, your loan in place and be prepared to verify cash assets.
How to I pick a good one?
There is plenty of inventory and some are great deals for investors or buyers looking for a primary residence. If one buys on the court house steps they may find hitchhikers like unpaid liens, taxes, secondary loans, etc. affecting title and they potentially could become the new owners responsibility. "Buy bank owned" is safer as it affords greater protection to buyers. Once the bank takes back a foreclosure, the title gets cleaned up before it's re-sold. Determine your strategy and weigh out the pros and cons. If you are after a fixer, investigate condition throughly to avoid hidden money pits.
What are the costs?
The best deals can be negotiated for cash...less hassle, fewer parties in the transaction. Make sure that carrying costs are included. Are you going to rent it out? How long will it take to find that perfect tenant? List cost of sale items like marketing costs, taxes, insurance, maintenance, utility, HOA transfer fees, and tack on a fat pad. Savvy buyers ask their agent for an estimated closing cost break down that will cover escrow/title/loan charges. The cost of fix up also should be addressed. Get a solid grip on the actual cost for flooring/paint/landscape/appliances, etc.
How does location affect your choice?
Are prices still falling in the area you desire? Factor it into your calculations. Did you luck out and find a great deal in a well established neighborhood with good schools? If yes, grab it! If the area has a large amount of foreclosures, you may get the lowest price but is that market still dropping or is it stablizing? Verify the demand for rentals or if you are occupying, look at the projections to determine how long it will take to recapture funds when you sell down the road.