When starting the process of buying a foreclosure home, there are obstacles you must know about in order to make your purchase and how to measure the "risks" of buying real estate foreclosures.

Anytime you purchase a foreclosure home without even a financing contingency, you had better know what you are doing. There are clear steps you can take that will help make buying a foreclosure home a better experience for you and make it the best single real estate investing opportunity of your life!

1. Educate yourself on the different types of foreclosure properties, and the foreclosure process.


There are three basic types of foreclosure properties, representing different stages in the foreclosure process: notice-of-default (NOD) and notice of trustee sale (NTS), which are both pre-foreclosure properties; and real-estate-owned (REO), a foreclosure property which has been re-purchased by the bank.

For most consumers, buying a pre-foreclosure property from a private homeowner is the best option. It s important that both the buyer and the seller see the situation as a win-win situation, in order to ensure a smooth process. In this case, the seller is able to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing on the property, and the buyer gets a below-market price on a home.

Foreclosure auction sales are typically for the professional investor. These properties are formally in default, and sold to the highest bidder at an auction. Buyers are required to be physically present at the auction, and must pay 100% of the sale price in cash, on the spot, or with a letter of credit. Though foreclosure auctions can offer significant savings, they are not for the feint of heart or the uninformed. Unless the buyer is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing against professional investors and sometimes even the lender at the auction.

Once the lender officially reclaims a home, it becomes a real-estate-owned property (REO). While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value.

2. Secure financing early


It's important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate. It s best to work with a lender who understands the foreclosure process, and can guide the buyer through certain steps, such as ensuring that a property is FHA-compliant. Another reason to consider pre-qualification is that not all lenders finance foreclosure properties.
Having approved financing in-hand makes negotiations with both the seller and the lender easier, and may even make it possible for the buyer to simply cure the default and take over the existing loan to reduce loan processing fees.

3. Engage a real estate agent as a buyers representative


Most people hire a real estate agent to sell their home. These seller s representatives are charged with making the sale and negotiating the best deal for their clients. Buyer s representatives have the home buyer s interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make a buyer s life much easier. There are agents who specialize in the foreclosure market, with specific experience in REO properties. Look for an agent with foreclosure transaction experience, as well as knowledge of local, regional and state laws. But it s also important to consider the agent s knowledge of the area; their ability to close a deal; and their access to other professionals (attorneys, lenders, mortgage and title professionals) to ensure that the buyer is in good hands. I found such help from the consultants at http://californiaforeclosuredirectory.com/

4. Shop for Equity First Then Marketability.


Many would-be investors make the simple mistake of repeating what they have heard regarding what makes a good real estate investment. They believe that a 3-bedroom/2-bath free standing home is the only investment worth making. This is absolutely not true. What you want is equity. You do not want to end up with an oddball property. If one-bedroom condominiums are commonplace in your real estate market then they are every bit as valuable as a single family/free standing home. Shop for equity first and then for marketability. Leave all the foolish notions for those who know less than you. Your potential market has just increased because your knowledge with regard to buying a foreclosure home has increased.

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