How to Finance Foreclosures
    Posted on 06/20/2022

People all over the nation are interested in purchasing or financing foreclosed properties. If you are one of those people, the following article is an in-depth view of the process of financing foreclosed properties, as well as several tips to help you out on your journey. 

The Fundamentals of Financing Foreclosures

Before we delve into the more technical aspects of the foreclosure financing process, let us begin with the basics.

What exactly is a foreclosed property?

Sometimes called a bank or real estate owned (REO) property, a foreclosed home is a piece of property that was once owned by a customer but is now in the hands of the mortgage company or lending institution that individual used to acquire the property.

REO’s are most usually acquired through mortgage foreclosures, but sometimes they are voluntarily given back to the lending institution (this is known as a deed in lieu of foreclosure). The resulting owner (the lender) then becomes the legal holder of the property title, and almost always puts the property up for sale in an attempt to regain the amount of lent money owed by the former owner. 

Before Rushing into Foreclosure Financing

It’s important to gain a comprehensive understanding of the foreclosure and foreclosure financing processes before financing your first foreclosure property. You want to know everything there is to know about things such as hidden costs and fees for examples so that you are prepared to deal with them once they do arise. An example of a type of hidden cost is when a property has a lien attached to it; sometimes the purchaser will be legally required to pay back that associated debt. Another type of hidden, high-cost baggage is large sums of money attached to the property owed to the IRS. That’s why it’s important to either deeply educate yourself or hire an experienced advisor to help guide you through the process.

Some Tips about Foreclosure Financing

 The following are some helpful tips that will be of great use to anyone interested in financing foreclosed properties.

Investment partners and/or private lenders

It is very common in the foreclosure business world for potential buyers to partner with another individual or professional who can offer additional amounts of money for the property. Usually these investors are interested in obtaining partial ownership of the property in return for little to none of the daily tasks of managing that property. Usually, there is an agreement made between the two parties which will signify that the lender will receive a portion of the proceeds when the property is sold, or something similar.

Qualifying for a bank loan

Or more specifically, pre-qualifying for a bank loan. Cash rules the world, and this goes double when buying property. Before going out and shopping for properties though, go to various (mortgage) lenders and try to pre-qualify for a loan. If you have confirmation of your pre-approval for a loan, it will make dealing with sellers a lot easier because it puts you ahead of the pack so to speak.

Assuming the loan of the seller

This method of financing is good because it kills two birds with one stone. For one, it stops the property from being actually foreclosed on (which is good for the seller). Second, it is good for the buyer because assuming the loan means that they will not have to pay any large processing fees or deal with lengthy delays in the process. All that is required is that they “cure” the default.

Closing Thoughts

Although many people are very interested in buying foreclosed properties, they do not know where to even begin their search for financing. This article has been a brief yet thorough guide to the foreclosure financing process, which will hopefully help anyone who is interested in financing options but still not sure of where to start. Foreclosures can be a great investment, provided that the associated property is a good one to purchase. Hiring an experienced advisor to help smooth the process out is advised.   

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