With a record number of homes being foreclosed, you may be thinking now is your opportunity to get an incredible bargain. Foreclosure statistics indicate that in 2009 the number of foreclosed homes in the United States hit a record high of 2.8 million. Some analysts predict unless the economy improves substantially, 2010 foreclosures could surpass 3 million.

Buying a foreclosed property certainly can be rewarding but there are risks, so you need to do your homework about foreclosure. There is a lot of free foreclosure information available on how to buy a foreclosure and whether it’s the right investment for you. First-time homebuyers in particular should talk to professionals who can provide foreclosure advice

Buying any home raises questions and issues about financing, taxes shelters and the true costs of home maintenance and improvements, not to mention the neighborhood and environment. A foreclosed home purchase may be a bargain based on the purchase price but there also may be expenses that you are not considering. These expenses could negatively impact your investment and even result in bankruptcy.

Advantages of Purchasing a Foreclosure

• In most cases, while you should expect to put a lot of work into the foreclosed home to fix it up, you might be looking at prices 50 percent below market. Furthermore, with the abundance of listed foreclosed properties, if your transaction falls through, you have options
• You may be able to bargain, particularly if the property is in the pre-foreclosure stage and the buyer is feeling a sense of urgency.
• Foreclosed properties can be very lucrative as rental properties since your initial investment to get into the rental market is reduced. Also you can start out with your property as a rental and then sell it when the market picks up.

Disadvantages of Purchasing a Foreclosure

• It is not sold on a first-come, first-service basis unlike the traditional home buying market.
• There are hidden costs. More than likely the condition of the home will be an issue since the homeowner stopped caring for the property or even worse damaged the house out of anger. Houses sold in auction do not allow for inspections, so you get the house as is.
• Sales may take longer than a normal home sale. In particular, Real Estate Owned (REO) foreclosures – repossessed by banks and government agencies–require additional paperwork. Short sales can take 60 to 90 days.
• In the case of pre-foreclosure – the period when the homeowner goes into the default -- the lender may need to approve your offer if the purchase price does not fully cover the mortgage and closing costs.
• Foreclosed homes bought at auction not only must be paid in cash, they must be paid on the day of the auction. Also in the case of auctions, you are responsible for title searches and you assume any liens, back taxes and mortgages.