If you're in the market for a house, you can save yourself a good amount of money by taking advantage of the foreclosure market. Buying foreclosures allows homebuyers to get better houses for their home-buying dollars, or speculators to get discounted properties which they can hold on to until the real estate market recovers and they can sell for profits.

Buying foreclosures is possible because banks are eager to recover the loans they made to the homes' original buyers, who are now in default. But the banks do not immediately foreclose on properties when the homeowner falls behind on the mortgage payments. And if you're familiar with the three steps of the foreclosure process, you'll see that there are different approaches to buying foreclosures along the way.

Buying A Home During Pre-Foreclosure

The first step a bank takes when a homeowner falls behind on the mortgage payment is tp notify the homeowner of the amount of default and offer the opportunity to cover it. The homeowner has options; they can get a second loan from another party; they can use their other resources to pay it off; of they can put their home on the market and hope to sell enough to pay off what they owe.

Those interested in buying foreclosures should, at this point, try to deal with the homeowner, who still has some say in the process. Homeowners in this position may be willing to take a loss on their property, because they may still recover apportion of their equity. And if you approach the homeowner about a sale, you can ask for an appraisal to determine whether buying the property is in your best interests.

The big negative about trying to buy a home in pre-foreclosure is that you will be dealing directly with the homeowner, and whatever obstacles he or she may throw in your way.

Buying Foreclosures At Auction

When a homeowner fails to pay off the amount of overdue mortgage payments, the bank will institute full foreclosure proceedings, forcing the owner to vacate and putting the home up for auction. Buying foreclosures at auction can often save you even more money than you would have by buying directly from property owners, because the bank is anxious to get what can on its investment.

Buying foreclosures at auction is also less complicated than going through the series of offers and counter offers that dealing directly with an owner can entail. But there are still some caveats if you are thinking of buying foreclosures this way.

First, if you haven't done an actual inspection of the property beforehand, you'll be buying a pig in a poke. The savings you get from buying foreclosures can be wiped out by the repair costs it takes to make them livable. And there is a more than even chance that you'll be competing with the bank when buying foreclosures, so will not get them at the minimum bid.

Buying Directly From The Bank If a bank has been unable to find a buyer at auction, it will do whatever it can to sell the property, and you have your best chance of getting a bargain.

But once again there are caveats. At this stage the bank may have already engaged the services of a realtor, and you'll be saddled with the commissions. You may also have to pay someone, or spend a good amount of your own time, to research the property, because the bank might not be forthcoming with much information.

Buying foreclosures is an option at any stage in the foreclosure process, so consider each the advantages and disadvantages of each, and make your move!