HOW TO FIND FUNDING FOR YOUR PURCHASE
Buying a foreclosed home can be a smart way to save big bucks on an investment property or a new home for your family. Maybe you've already looked at foreclosed homes in your area and want to buy. Unfortunately, securing funding for foreclosures can seem confusing and difficult. Knowing the funding options that are available and which suits your situation best is essential to successfully buying a foreclosed home.
Can You Use a Conventional Home Loan for a Foreclosure?
If you've purchased a home before, you've likely used a conventional home loan, such as an FHA loan. When shopping for foreclosures, you should be aware that it might not be possible to secure a conventional loan for your purchase. Most traditional home loans prohibit buyers from buying as-is properties. Many foreclosed homes are in poor condition and need updates and repairs to be habitable. Conventional loans can only be used for homes that are in safe, habitable condition.
Even if the foreclosure you're considering is in excellent condition, you might not be able to access conventional funding before another buyer makes an attractive offer. The lender selling the foreclosed property is also likely to accept a cash offer over an offer involving a conventional home loan. This is because FHA loans require a home inspection, and a seller doesn't want to take the chance that a home won't pass inspection if they also have a cash offer on the table.
Alternative Funding for Foreclosures
While you might not be able to use a traditional home loan to purchase a foreclosure, you still have options. There are lenders out there who are knowledgeable in foreclosed properties and work with interested buyers. If possible, speak with several different lenders before making a borrowing decision on a foreclosure. This will help ensure that you get the best loan rate available to you.
Be sure that you're clear about your purpose too. The type of lender that caters to buyers looking for a personal residence is often different than the type of lender that caters to property investors or fix-and-flip buyers.
Funding Through the Original Lender
The bank or mortgage company that issued the original mortgage for the foreclosed property may be willing to finance qualified individuals interested in using the home as a primary residence. If you plan on buying a foreclosed home, be sure to ask if the original lender will offer financing. Some lenders maintain a list of homes in foreclosure and design flexible buying programs for their purchase.
However, this type of financing might not be available if you want to purchase a foreclosure as an investment property instead of as your own family home. Banks and more traditional mortgage lenders are generally wary of investment property purchases unless the borrower has an established history of property investing success.
Finding Funding For Foreclosures
Purchasing a foreclosure often means working with lenders who specialize in these types of properties. You might also hear investors who finance foreclosures referred to as hard-money lenders. To access this type of funding, you generally need to have substantial collateral in the form of real property or other tangible assets. These lenders tend to offer shorter terms than traditional lenders because they expect borrowers to make money back on their investment quickly.
There are networks of foreclosure investors on the internet. Interested buyers should search for financing networks to get a better idea of their requirements and limitations. Be aware that you may need to formulate a business proposal to garner the attention of these types of investors. If you've never invested in a property before, look for a mentor who can show you the ropes. Knowing what investors look for in properties and what they expect from a business proposal will increase your chances of securing funding.
Finding Angel Investors
Many buyers who want to fix and flip homes prefer to work with financers known as angel investors. These types of investors provide up-front money to individuals who present excellent business plans. Many investors will also expect you to demonstrate past success fixing and flipping a property or making money from real estate investments before they'll finance your project. Angel investor networks can be found online, and options range from individual financers to groups of investors.
In order to secure funding from an angel investor, you'll need a solid business plan. Your business plan should details all costs associated with the project, the proposed project timeline and projections regarding the profitability of the property. If you don't know where to start, consider signing up for business plan classes through your local small business commission.
Remember that having accurate information about the foreclosed property, your own income and assets, and your plans for the property is essential to your success. All lenders are more willing to work with prepared buyers who demonstrate a high likelihood of meeting their obligations than with unprepared or unorganized buyers. With the right preparation, buying a foreclosure can bring big returns.