Tips for Buying a Foreclosed Home

May 9, 2007 — -- More foreclosure signs are popping up in front of houses across the country.

Foreclosures went up an astounding 42 percent last year, reaching 1.2 million, according to RealtyTrac. Already in 2007, 2 million homeowners have been late making their mortgage payments, says Moody's Economy.com.

"In 2006, the average foreclosed home sold about 25 percent below market value. That is real money. You want to do your homework on both the property and the process," said Mellody Hobson, "Good Morning America's" financial contributor.

However, if there is any silver lining to this dark cloud above real estate, it is for those in the market to buy a home. But is buying a foreclosed home a safe investment?

Hobson offered a list of guidelines for foreclosure sales.

There are also people who bid on homes at auction for a living, so you might be bidding against someone who's very savvy.

Generally, a home that's bought at auction sells for about 40 percent below market value, so you get an incredible deal here. But another downside is that you must pay cash for it. You cannot get a mortgage, because a mortgage company must be able to go in and appraise or inspect the property, which it can't do in this situation.