How to Finance Foreclosure Properties
Foreclosure properties, REOs (Real Estate Owned) - property owned by banks and other lenders - and pre-foreclosures all represent great investment opportunities for buyers. For those seeking bargain homes foreclosures are the most popular source of affordable deals, because they often sell at or below wholesale prices.
Anybody can buy a foreclosure at an auction sale. All you need is some money, time to research, and an inclination to bid on a home. But be aware that if you attend a property auction, you may wind up bidding against professional foreclosure investment specialists who are also looking for inexpensive homes. If you are unsure about how the foreclosure real estate game is played, learn as much as possible before you attend an auction in the foreclosure learning center at ForecclosedHomes.com.
Before stepping into the foreclosure property market, it is important to educate yourself. You’ll want to know as much as possible about the pitfalls of hidden costs, foreclosure laws in your state, and how to finance your foreclosure. For example, when purchasing a house that has a lien against it, the buyer may be responsible to pay back that debt. You will want to explore the various ways you can finance your foreclosure purchase. Some lenders don’t lend money for foreclosure property mortgages, while other lenders are eager to make loans to help you buy. To find out more, do your homework ahead of time, so that you can approach the foreclosure auction sale with confidence and adequate financial backing.
Use knowledgeable resources like ForeclosedHomes.com to find answers to your foreclosure questions. Be patient, do your research, and learn as much about the properties you are interested in. Don’t rush into the first opportunity that comes your way. Foreclosure properties can be found anywhere, more are coming on the market every day. As you study how the process works, continue your hunt for the right investment that suits your needs. By dedicating some time every day to search through real estate foreclosure listings in your area, you will find the home that is right for you.
While you search the listings on sites like ForeclosedHomes.com, look for information, leads, and advice on financing.
Here are five powerful tips to help you finance foreclosure property:
- Pre-qualify for a bank loan
Money talks. If you want to walk away with the property, show cash up front. Sellers respond when they have confidence that you can support your offer with prompt financing, so pay a visit to your mortgage lender and get pre-qualified before you shop for a home.
You can get pre-qualified in a matter of minutes, by showing a few documents and submitting to a credit check. And if you want to really up the ante, go ahead and get pre-approved for the loan. With a pre-approval letter in hand, you can open doors and have a distinct advantage over other competing bidders.
- Assume the seller’s loan
If the terms of the loan allow it, you can take over the existing payments and solve two problems at the same time. The strategy is good for the seller, who avoids foreclosure and as the buyer, you are able to simply cure the default and take over the existing loan without significant loan processing fees or delays. Veteran’s Administration (VA) loans are great in this respect – if you find an assumable VA loan you should definitely take advantage of the flexible option it represents.
- Owner/Seller financing options
Owners who are faced with the dreadful possibility of foreclosure are willing to work with you. If you are able to assume their mortgage, most of the stress that they are under will be relieved. In return for being rescued from foreclosure, sellers will often accept terms that are very attractive to buyers.
For example, if you don’t have cash for a down payment, you can work out a deal with the seller so that they can stay in the house, rent free, for a certain period of time, in lieu of a down payment. Or you could offer them reduced rent, in exchange for their labor to help you fix up the place before you sell it, which reduces your remodeling costs.
- Home Equity Loans
Sometimes the financial capital you need is right under your feet. If you own a home with accumulated equity, you have a great source of investment money without ever leaving home. Lenders will usually charge a slightly higher rate of interest for a second mortgage or home equity loan, but the interest and many of the closing costs are tax deductible, which offers extra savings over time. And once you secure the loan and buy your foreclosure property, you can always leverage the new piece of real estate as collateral and refinance to a lower interest rate.
- Private lenders or investment partners
One of the most common arrangements in the real estate foreclosure business is partnership with lenders who have money to invest, but are not interested in doing the day-to-day work required to buy and sell property. You may have a colleague, friend, or family member with investment capital, and you can sit down and iron out an agreement to share the profits of your joint venture. They put up the money so that you can bid on foreclosures, and then you pay them back with a share of the proceeds when you sell the property and reap a capital gain.
You can also get funds from professional investors who lend money for a cut of the action. And if you have trouble getting a traditional loan from a bank, there are plenty of legitimate lenders who specialize in providing “hard money” loans, or loans with higher interest rates made to people who would otherwise be turned down. Find a reputable lender through resources like ForeclosedHomes.com, and you may discover that professional partnerships can double your potential for success.