Is buying a foreclosed home a good deal? It can be, but you should be aware that the seller will not make any buyer-requested or lender-required repairs. That is most definitely a problem if you want to get a loan.
Fannie Mae has the HomePath Renovation mortgage for just this purpose. The house must be owned by Fannie Mae. Fannie Mae does not lend directly to buyers. They set the guidelines that lenders need to follow.
HomePath can be used whether the property needs minor or substantial repairs. The down payment is 3% of what the home is expected to be worth after the repairs.
One of the biggest advantages of a HomePath mortgage is that it doesn't require mortgage insurance, regardless of the down payment amount. The interest rate is typically 0.25% higher than the rate on a Conventional loan, but since no mortgage insurance is required, the payment is still lower.
By and large, HomePath is the best loan for a homebuyer to buy and fix up a foreclosure.
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