Financing Options
After you have conducted all of your research and found possible properties, it’s time to choose which ones you want to invest in and how you’re going to purchase them. Obtaining financing for foreclosure properties, Bank-Owned (REO) properties and properties headed to foreclosure can be a bit tricky. Some lenders will not finance mortgages for properties that are in foreclosure. As an investor, it’s important to know what options are available to you and which ones will give you most efficient results.
Assume the Current Loan
This situation is a great way to fix two problems at once. By assuming the current loan you are 1) helping the seller by relieving them of their financial distress and avoiding foreclosure and 2) curing the default and taking over the payments without the normal delays and processing fees associated with a new mortgage. Veterans Affairs (VA) loans offer a flexible option that makes it easy for buyers to assume the seller’s current loan. If the property you are interested in is funded with a VA loan, be sure to explore this option.
Home Equity Loan
Home equity loans are excellent sources of financing for several reasons including purchasing a foreclosure. If you already own a home and have enough equity to get a loan, you can use that money to purchase the foreclosure. Be aware that sometimes lenders will charge a slightly higher interest rate for home equity loans or second mortgages, but the interest is tax deductible and the loan doesn’t have to be permanent. Once you own the foreclosure, you can always refinance at a lower rate if necessary, using the property as collateral.
Bank Loan
While some lenders shy away from financing foreclosure properties, others understand that new ownership requires new financing. When approaching a homeowner or institution with a proposal to purchase a foreclosure property, it is helpful to have a pre-approval letter in hand showing that you have the funds to back up your offer.
With a simple phone call or visit to the bank you can provide the necessary information and be pre-approved in just minutes. Having this letter in hand when you approach the sale is definitely a plus.
Investment Partners and Private Lenders
There are sometimes individuals or companies that have investment money but do not want to deal with all of the hassles of buying and selling properties. This is where you can join them and negotiate a percentage of the profit in return for their investing support. They fund the initial purchase of the foreclosure property. You manage the property and re-sell it for a profit. After the property is sold, you return the borrowed amount along with a percentage of the profit. If the right partnership is formed, this can be a win-win situation for everyone involved.
Cash Investors
Hard money loans can also be arranged from cash investors. These can be found several different ways. Look in the yellow pages for ads with these key words:
- all credit
- any credit
- we buy houses
- cash for houses
If you still can’t find any cash investors in your area, attend some auctions and talk to the bidders. Find out who they work with along with requirements and phone numbers. Follow-up with this information and you’ll have the financial backing that you need.
Did you enjoy this article? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment