Foreclosure Homes Financing
Conventional and Creative Financing Methods in Foreclosure Home Financing
Your financing options in buying foreclosure properties
You have the following options depending on your special circumstances:
- You have a 20 percent down payment, and cash for closing costs: Get conventional loan from a banking institution.
- You have 20 percent down payment, and cash for closing costs. However, your credit rating is not that great. Go to a private lender and pay a little higher interest rate.
- You have less than a 20 percent down payment.
- Get an Adjustable Mortgage Rate (ARM) loan (with low interest rate) to cover your down payment.
- Get Private Mortgage Insurance (PMI) to insure your down payment.
- Contact a private mortgage lender that provides 100 percent and even 125 percent financing at a higher interest rate.
- You do not have a 20 percent down payment and your credit rating is poor: Ask for seller financing. You don’t have to qualify.
Conventional methods of financing
- Home mortgage loans
- Fixed rate home mortgage loans
- Adjustable rate mortgage (ARM) loans
- Home equity lines of credit
- Refinancing
- Bad credit loans
Creative financing methods
Creative financing techniques include:
- 125 financing if you need some additional funds for home repair and improvement
- minimum or no down payment financing of home purchase by sub-prime lenders
Your borrowing strategy in buying home foreclosed by banks and government agencies
Every buyer has a different sets of needs for financing. Your borrowing strategy will depend on whether:
- you will hold or flip the foreclosure property
- your credit rating allows you to get loans directly from the "prime" lenders or "sub prime" lenders;
- you need the funds for purchase, repair and maintenance, upgrade or remodel the foreclosure home
- you need the loan for long term (30 years), medium-term (15 years), or short-term (only a few months)
Remember: you can always include foreclosure contingencies in your offer and purchase contract to allow you to get out if you find any problem with foreclosure home.
Strengthen your hand: Be a cash buyer!
You can obtain better deals by being a cash buyer. Lenders and banks will be more willing to give discounts to cash buyers than those who do not have their loans pre-approved yet. Time is money for lenders as well.
Stay in pre-approved status if you plan to do the fixer-upper foreclosure business on a part-time or full-time basis. Getting pre-approval letters from lenders is easy. You may contact local or online lenders to get such a letter in a matter of days.
- Stay pre-approved all the time if you wish to flip properties
- Get seller financing if you wish to hold the foreclosure property for income.
Buying foreclosure house is not very different from buying home in the market. Explore all home financing possibilities
Before you approach lenders for buying a foreclosure property, get some information on FHA (Federal Housing Authority) loans to know to take advantage of reducing your down payment and better terms with the lenders. FHA loans carry the insurance protection of the U.S. Government. That’s why lenders can give you better terms upon obtaining such insurance: U.S. Department of Housing and Urban Development
Banks offer mortgage loan financing for those who buy bank foreclosure properties from their inventory of real estate owned (REO)
After financial crisis in September 2008, banks were forced to speed up the process of liquidating their real estate properties that they acquired due to unpaid mortgage looans. Now you can buy their foreclosed houses and get financing from the same bank. You will find banks and other financial institutions offering free bank foreclosures listing their foreclosure homes and also provide financing.