Getting a standard mortgage can prove to be complicated enough for the average homebuyer. Knowing how to finance the purchase of a foreclosed home can be even more tricky. However, with just a little information, even the least-experienced of real estate purchasers and investors can find adequate funds to finance virtually any foreclosed home.
The type of property you anticipate buying will greatly influence what type of financing options are at your disposal. As a result, you must know what type of property you attempt to purchase before you begin searching for financing solutions.
· Pre-foreclosure Sales
Also called notice-of-default sales or NOD sales, pre-foreclosure sales happen before the current owner loses the home through default of the loan. As a result, NOD sales are conducted in the same way that any normal home sale would be. For an NOD sale, most basic mortgages will suffice. Your down payment, interest rate, and repayment terms will be dictated by the terms you and your lender agree to. While pre-foreclosure homes are not foreclosed homes in the truest sense, they are often bundled together.
· Auction Homes
Once the pre-foreclosure period is over, homes are put up for auction to the public. Although foreclosed homes sold at auction can be very inexpensive, they are a bit trickier for the average homebuyer to finance. Buyers often must pay 10-20% at the time of the sale, and the rest within 24 hours-making a typical mortgage impossible for such a purpose.
Financing an auction home is possible, though, with a little ingenuity (and some capitol). If you are waiting to sell your current home until you purchase a new one, begin by asking your local loan officer if a “bridge loan” is possible. Often, this is not possible for the purchase of an auction home, but can be in some circumstances. They key is asking.
If you have access to a large amount of stocks or bond-or even another property, now is the time to use them as collateral on a secured loan for your foreclosed home. Secured loans tend to have lower interest rates, and can offer a great way for you to gain access to large amounts of cash. Be aware, however, that it will take a great deal of equity for you to secure a large secure loan.
When secured loans aren’t an option-or won’t provide enough capitol to purchase your foreclosed home-obtaining an unsecured loan may help. Your income level, credit history, and ability to repay will affect the amount and terms of your loan. However, once you purchase the foreclosed home, you can always refinance your unsecured loan into a standard mortgage.
· Bank Owned
Once a home has been repossessed, it is officially a “foreclosed home,” and is put up for sale on the market by the lender. Often foreclosed homes are listed just as any other home would be, making obtaining a “normal” mortgage the most obvious-and easiest-answer for the homebuyer. However, when a home is listed as a “HUD” or “VA” foreclosure, homebuyers often become confused, thinking that FHA (Federal Housing Authority) or VA (Veteran’s Administration) loans are their only alternative. This is not true!
If you are looking to buy a Housing and Urban Development foreclosed home (HUD) or a Veteran’s Administration foreclosure (VA), then the original loan was initially purchased with a Federal Housing Administration (FHA)or Veteran’s Association (VA) mortgage. When an FHA home is repossessed, the Federal Government is responsible for repaying the lender.
What does this mean for you? Easier financing for your foreclosed home. Once HUD or the VA for accepts your purchase offer, you have 30-60 days to obtain standard mortgage financing. In addition, you may be required to only supply 3-5% as a down payment, so buying a HUD or VA home can make owning and financing a home even easier for those strapped for cash. Keep in mind, however, that financial requirements vary from home-to-home-so make sure to ask your real estate agent for details.
No matter how much capitol you have at your disposal, buying and financing a foreclosed home is almost always possible. They key to success, however, is understanding that different types of foreclosure properties can require different methods of financing. Once financial limitations are realized and planned for, almost anyone can successfully purchase a foreclosed home.
