Buying a foreclosed house can be a good way to get a great bargain on either a residence you can live in or as an investment property you can sell later for a profit. Home foreclosures have skyrocketed in recent years. Some foreclosure properties sell for 25% or less of their market value, so it may be worth considering. However, you must do your due diligence and become thoroughly familiar with how foreclosure sales and auctions work and be aware of the risks involved.

The first thing you should do if you are considering investing in a foreclosed house is to become thoroughly familiar with how the laws and foreclosure process works in the state and county you are interested purchasing property in. The legal requirements and procedures do vary from state to state so it would be best to focus on a particular location for purchasing foreclosure property. It is also a good idea to find a seasoned real estate agent who is experienced in dealing with foreclosure properties.

Once you have a good understanding of how the foreclosure process works you can begin your search for a foreclosed home. There are various ways to find foreclosed properties. They are advertised in newspapers and real estate publications, and you can find property listings on foreclosure websites and government sites such as http://www.hud.gov. You can also contact mortgage companies and banks that have real estate owned (REO) departments for listings. Finally check the local county clerk’s office. When a lender needs to foreclose on a property they must file a notice of default with the local county clerk’s office.

You will need to get prequalified for a loan before you consider purchasing a foreclosed house. Check your credit report and contact lenders to see if you can prequalify for a loan on a foreclosure property. In most cases you will need to pay for the home that you purchase through a foreclosure sale or auction almost immediately, so you will need to have your financing in order ahead of time.

There are several ways you can purchase a foreclosed house. You can buy from the owner in a pre-foreclosure sale, at a foreclosure auction held by a bank, mortgage company, or governmental agency such as the I.R.S. or HUD, and also from a lender through their Real Estate Owned (REO) department. These different methods have different requirements and processes and may pose different risks.

Buying a foreclosed house can pose significant risks, so even though they may sell at discounted prices you must be very knowledgeable about the process and be sure to thoroughly research the property. First you will want to make sure the asking price is truly a bargain. Have a real estate agent check the property values for homes in the area or comparable homes. Foreclosed homes are sold “as is” with no warranties. Once a sale is made it cannot be reversed. Many foreclosed houses have sat vacant for months or even years, and former homeowners may have also neglected or even damaged the property before vacating. It is very important to have a thorough home inspection and be aware of the risks you are taking when purchasing a foreclosed house. Be sure to weigh the risks and amount of time and effort it takes to be able to profit from a foreclosed house versus the potential profits you may enjoy before making your final decision.