All types of foreclosed properties and homes in jeopardy of foreclosure make a great profit-making opportunity for real estate buyers. With millions of foreclosures on the market, foreclosure homes offer ordinary buyers an opportunity to buy cheap houses at wholesale discounts even below market prices. Once an investor identifies potential deals, he or she needs to have financing already in place to fund the transaction.
Many banks do not lend money on foreclosed properties. Some lenders will not finance their own REO properties. It works to the advantage of foreclosure investors to have multiple sources available to finance foreclosure homes purchases. Knowing that you have sufficient funds allows you to invest in foreclosed properties with confidence.
Here are six ways you can finance your purchase when investing in foreclosure homes:
Often, lenders have strong motivation to get rid of the nonperforming loans on their books, in the form of foreclosed properties. Ask the bank to finance the deal. Taking out a real estate loan with the lender to purchase on of their REO properties presents a winning situation for you and the lender. Use this funding approach for bank owned homes where you do not have much competition–the best candidates usually have been on the market for 45 or 60 days and undergone a few price reductions.
Pre-Approval for Financing
Once you locate foreclosure homes that fit your conditions, move quickly to make the deal. If you plan to use bank financing, you strengthen the impact of the offer by showing proof to the homeowner or bank of pre-approval, which proves your ability to support your purchase offer. It only takes a short time to become qualified once you submit the necessary documentation and undergo a credit check. Get a loan pre-approved for a specific amount. Make sure that you submit a copy of your pre-approval letter with any offers you make on foreclosed properties.
When buying a pre-foreclosure directly from the owner, review the loan documents because some mortgage agreements have a clause that allow buyers to assume the mortgage. Many refer to this provision as “subject to existing financing.” This helps the seller avoid a foreclosure on the credit history. VA foreclosures make good assumable loan candidates. You can also discuss assuming the existing loan on the property with the REO Properties lender.
Many individuals form real estate investment partnerships. Sometimes, one partner may have the money necessary to invest in foreclosures but do not have the experience. Other may prefer to avoid the day-to-day responsibility of buying and selling foreclosed properties. Friends, associates or family members can form a partnership. You will need to work out a partnership agreement for how to distribute profits made from your foreclosure business.
Home Equity Loan
Homeowners who invest in foreclosed properties, and plan to flip houses or sell within a short time period, should consider taking out a home equity line of credit to finance their investment. Lenders will approve the line of credit faster than conventional loans. Mortgage lenders typically charge a higher rate of interest for second mortgages secured by your home. However, you can deduct interest expense and closing costs on your tax returns. One you take possession of the foreclosed property, you can finance the home to pay off the home equity line of credit.
This type of financing related to foreclosed properties investing involves the use of the money of private investors who make one to three-days bridge loans. This financing option provides capital to investors who specialize in buying foreclosure homes to flip in a “back-to-back” real estate transaction and has a buyer in place for a second closing. Check around for the best interest rates, which can go as high as three percent or more