Financing One of Those Foreclosures

by : philip smith

Before you get hung up on concerns that you cannot raise enough finance to invest in one of today's many foreclosures, let's look at the size of the problem.

At each of the three stages of foreclosure the amount of cash you require may differ considerably, and in some cases very little is required. Depending on the property type you envisage, financing choices may be limited; they will certainly vary, as they will depending on your financial status, your creditworthiness, and your ability to manage and recover holding costs. Creativity helps.

Bank owned homes, those owned by the original lender at the end of the foreclosure process, are the easiest to get to grips with. A traditional home mortgage may be by far the easiest way for a home buyer to finance a purchase from the bank. Buying a foreclosed home from either HUD (Housing and Urban Development) or the Veteran's Association (VA) gives you a easier choice (standard mortgage from your own lender as an alternative to FHA and VA loans) and a reasonable length of time to arrange it (30-60days)with probably a 5% deposit or less.

Before the Auction sale, when homes are in pre foreclosure, can present more of a challenge, especially in non judicial process states where foreclosure laws allow a swift process to trustee sale. There may not be enough time to arrange a standard mortgage. There are a range of choices available to the knowledgeable purchaser, some with little actual cash and fresh financing at all. There may be 'subject to ' financing available (taking title 'subject to' existing liens), or an opportunity to assume the existing loan (check out the trust deed).There may be no equity in the property and the seller will except just enough cash to assist with moving out.

The Auction or Sheriff's sale presents the greatest challenge. The cash deposit for the winning bid may be high ($5,000 cashier's cheque not unusual) and the time to settle very tight, some states requiring same day settlement. If you are waiting to sell your current home you may be able to arrange a line of credit with your banker before the auction. Investors frequently use Hard Money loans or other unsecured loans if they require a 'bridge'.

For all these stages using your second home or another property, or a large amount of equity built up in your existing home, for a secured loan is often the cheapest alternative. Make sure you have further capacity to arrange a home improvement loan for the repairs or renovations required. Have you thought of forming an investors' pool from among family and friends? These are just some of the usual ways that investors and home buyers use to turn a great opportunity into a sound (and really great) real estate investment.