There are many advantages to purchasing a foreclosed home, including the fact you can score a normally out-of-budget home at a cheap price. In exchange for that cheap price, however, here are two issues unique to foreclosed homes you must be prepared to deal with if you hope to get to closing without too much trouble.
It May Not Be Habitable
Sometimes when homeowners realize they are losing their houses, they stop taking care of them (or they simply don't have the money to continue doing so). On top of that, when banks finally take possession of these homes, they typically don't put any money into maintaining them if they can avoid it. This means that when you get around to putting an offer on a foreclosed home, it may be in such a state of disrepair as to be uninhabitable.
While it's true you can easily rehabilitate a damaged home to livable conditions, an uninhabitable home can make it more challenging to secure a mortgage. For instance, you will not be approved for an FHA loan unless and until the home meets the agency's minimum requirements for habitability, which includes things like ensuring there are toilets in the bathrooms and there are working appliances in the kitchen.
You'll likely have more luck with a conventional mortgage from a bank, but you may still run into an issue where the bank won't finance the entire purchase price if the asking price is more than the home's market value. Banks will generally only issue loans for homes' assessed market values to ensure they can recoup their money if buyers default, so you would have to make up any difference in cash if the home's disrepair causes it to be assessed for less than the asking price.
There May Be Liens on the Home
Another issue you may run into with a foreclosed home is it may have liens on it. This is often the case when a homeowner has multiple mortgages (e.g. 1st and 2nd mortgages) or became past due on their taxes. Some lien holders can force homeowners into foreclosure to satisfy debts, so the amount a foreclosed home is being sold for may actually be the amount due for only one of the liens. There may still be other liens on the property including one for the original mortgage.
It's critical you do a title check on the property before purchasing it to uncover whether there are any unseen attachments that may affect your ownership of the property. Failing to do so can cause you to become responsible for paying any liens on the property and losing the home and your investment if you don't.
For more information about buying a foreclosed home or help finding the right house for you, contact a real estate agent.