In working with many buyers, especially the first time buyers, many are looking at foreclosure listings as a way to get a really great deal!  And, in many cases, they will get a great deal, and the home may not be in bad shape.  But there are several things to be aware of when looking at foreclosures to purchase.  Foreclosures are not for the feint of heart, so here are the things that you should be aware of when considering a foreclosure home to purchase!

1. Do you have the financial ability to complete the transaction?  It is most important that you either be pre-approved by a direct lender, who is local, or be in a position to pay cash.  You want to make sure you have enough funds for the higher downpayment you would have to make for a conventional loan (in case the home you are considering will not qualify for a VA, FHA or VHDA loan) as well as the money for your closing costs, in the event that the bank will not pay for closing costs as well as money to complete all inspections and repairs that may be needed immediately after closing.
2. Delayed closings are normal!  Many times, your contract may call for a particular closing date, but many things can happen – title issues arise that may take a lot of time to clear up, the loan may take longer to get underwritten, the bank may take a longer time than normal to respond to your offer.  It is possible that these delays will extend your closing time beyond your lock in date and you may have to pay to extend your rate lock in.  If you have sold a home, it is possible that you may have to go into a rental home until all the issues can be cleared up for you to close. 
3. Are you willing to provide evidence of your source of funds?  If you are paying cash for the property, the lender may require you to provide this.
4. Are you financially capable of bringing the property up to a livable standard?  Many times a foreclosed property may have been abandoned or in very poor condition.  Whether you are buying it as an investment property or as a primary residence, many times you will have to spend money after closing to bring it up to a standard that you can live in it.  If you are not going to do an FHA 203K loan, then you need to have the funds to do the repairs after closing.
5. Have you thoroughly researched the real estate market in the area you are purchasing the foreclosure home?  Whether a buyer is purchasing the home as an investment or as a primary residence, you will always want the house to appreciate in value.  But in this real estate market, many things can impact whether or not the home you are thinking of purchasing is actually a good value and one that will give you the appreciation that you are looking for:  are prices increasing or decreasing?  What is the absorption rate in the neighborhood?  Are there only a few foreclosed homes in the area or are there many and possibly more coming on the market? 
6. All foreclosures are “as is” sales!  All foreclosures are sold “as is”, meaning that the bank will not do any repairs, even if the repairs needed are to get a certain type of loan, such as FHA.   It is always recommended that you pay for any needed inspections so that you will know exactly what repairs you will need after closing.  This could include doing well, septic, termite, radon, whole house, mold, roof, HVAC, etc.  Additionally, many foreclosures may not have utilities on and the buyer may be responsible for putting the utilities on in their name prior to closing.  In this area, foreclosures are normally winterized during the winter and the buyer may be responsible for paying a plumber to come in and de-winterize the property prior to inspection and then having it re-winterized after the inspection. 
7. Offer and Counter Offer Process!  Most lenders have addendums that are required to become part of the contract.  The lenders will not allow revisions to the addendum and require that it be accepted as written except for a counter offer regarding price.  The buyer must realize that in this addendum lenders sway the terms and conditions in their favor including the right to sell the property to another buyer if they feel it is in their best interests to do so, even though the buyer is under contract with them!  Buyers need to know this is a potential problem upfront & must be emotionally ready for another buyer to come along and buy the property even if it is just prior to their closing!!!
8. Escrow Deposits!  In a resale contract that is not a foreclosure, the buyer agent’s brokerage company will generally hold the earnest money deposit in their escrow accounts.  With a foreclosure, the lender may require to be held by an attorney, title company or an escrow company.
9. Title Search!  Because outstanding liens can hold up your closing, the buyer should decide on their closing attorney at the time they write the contract so that the attorney can make sure that the lender does have legal possession of the home and the attorney can begin working on any outstanding liens from the beginning of the process.
10. Think resale before you buy!  Whenever you purchase a home, whether it is a foreclosure or a resale home, you want to always think about the resaleability of the home!  But with a foreclosure, you want to make sure that you could sell the home quickly if you had to.  You don’t want to buy a home that may be competing with too many other homes in the market!
11. Use an attorney to do your closing!  There are many reasons why using an attorney is always preferable to using a settlement agent, but when you are purchasing a foreclosure home, there are many legal issues that can arise.  You want to make sure that all releases are obtained at closing so you can get a clear title; the buyer will generally get a special warranty deed, rather than a general warranty deed, which an attorney should explain to you the difference, and the attorney can advise you on the type of title insurance you should get when buying a foreclosure. 

Buying a foreclosure home can be a great deal, but, as with any other purchase, you should always make sure you are aware of the pros and cons of the purchase.  Doing your due diligence is the best way to go and educating yourself about the process as well as the neighborhood and the home itself will help make this potentially rocky type of purchase go much smoother!