One of the things to keep in mind when trying to buy a distressed property is that the bankers that need to approve your offer want to consider only very serious offers. So make sure you're preapproved for a mortgage before you make an offer on a distressed house [source: Re/Max]. For one thing, you'll be competing with investors. From "house flippers" who fix up damaged homes to resell at a markup, to larger property management companies, investors are taking advantage of historically low homes sales to make a profit. They typically pay in cash, so you'll have to prove you're a reliable prospect to get the bank to accept your bid [source: Gibbs].
There are a few pitfalls to look out for when seeking preapproval. If a house is too damaged, lenders will often refuse to finance the purchase [source: Gibbs]. So if the property is in need of extensive repairs, you might have to put up extra cash, or take out a second loan to cover the costs. And if you have trouble getting preapproved, you might consider alternative lending sources. Small regional banks and credit unions are often more willing to loan money to borrowers with imperfect credit than the big banks [source: Gengler]. Also, the U.S. government offers FHA loans (through the Federal Housing Administration) that require smaller-than-usual down payments [source: Re/Max].