5 tips on buying a foreclosed home

1. Finding one has become easier

You don't need to show up at courthouse auctions or comb through legal filings. These days many banks sell foreclosed homes through real estate agents.

To find listings, look on sites that specialize in foreclosed properties, such as realtytrac.com and foreclosurepoint.com. The local multiple-listing service often has selections as well. (The fact that the home is in foreclosure is not always highlighted in the MLS, but it's often mentioned in the description.)

Finally, some agents specialize in foreclosures, so call your local realtor's office and ask for a referral.

2. It's best to buy from a bank

If you buy a foreclosed home at an auction before the bank repossesses it, you'll have to pay in cash, and you usually cannot inspect the property. You may also later discover that there are liens against it.

When a bank takes back a home, however, it will clear any outstanding liens. Plus, when you buy a bank-owned property, you can inspect it beforehand, and you can finance the purchase with a mortgage. Leave your suitcase full of cash at home.

3. Bring in a contractor before you buy

Many foreclosed homes have been abandoned, some even vandalized, and they often require major repairs. "One mistake a lot of people make is underestimating how much work it needs and the cost," says Rick Sharga of RealtyTrac.

To avoid getting stuck with a surprise bill, ask a contractor to give you an estimate of how much the restoration will cost and how long it will take. Many will do so for free in hopes of winning your business.

4. Bid low

Banks aren't necessarily selling foreclosures at fire-sale prices; some are listed at market value, says Gene Hacker, a broker in Orange County, Calif. So be prepared to haggle. The bigger the inventory of foreclosed homes the bank has and the longer the property has sat, the greater your chances of nabbing a great deal, says Chris Matty of ForeclosurePoint.com.

Set your initial offer about 20% below market price - or more if your area has a lot of foreclosures.

5. Be prepared to wait

While some lenders are getting back to bidders within 36 hours, others are dealing with an enormous backlog that can hold up their response for as long as three months. While you wait, someone can trump you with a higher offer.

To boost your chances at scoring a home you love, have multiple properties in mind, and get your financing pre-approved before you bid. Even if the lender says it has another offer, follow up every week - these deals can often fall through.