Creative financing techniques to buy foreclosures

How much do you need to buy a foreclosure property?

Find out loan and cash that you need!

First, calculate how much you can afford at: BankRate.com

You need cash for the following:

  • Down payment
  • Cost of materials that you need to fix up the home
  • Fees that you need to pay for a handyman or professional, if you need one.
  • Closing costs
  • Mortgage payments if you decide to keep the property to live in or lease out
  • Insurance and annual property taxes
  • Of course, you don’t need the whole amount at the beginning.

Types of mortgage lending

Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) Mortgages: These government agencies do not directly deal with you. They provide insurance and guarantees for loans extended by HUD-approved lenders. However, you need to qualify for their mortgage loan programs to get a low down payment. HUD/FHA and VA own many fixer-upper foreclosures. You can get loans from lenders insured or guaranteed by them for your fixer-upper purchases. FHA loans have maximum mortgage limits.

For a listing of HUD-approved lenders in your state:

U.S. Department of Housing and Urban Development (HUD)

Creative Financing Techniques in Buying Bank and Government Foreclosures

Tips in getting the home mortgage loan you want:

  • Try to get 100-125 percent financing to cover foreclosure repair and improvement
  • Ask seller to carry your first or second mortgage
  • Ask seller to take care of your portion of closing costs
  • Find relatives and friends to loan money at no or low interest. Consider sharing profits with them.
  • Find partners to finance while you take care of things other than financing (finding properties, fixing them up, finding handymen, contractors, etc.).
  • Credit card financing may be good for fixing up costs.
  • Equity line of credit is good for down payment and also for fixing up expenses. Interest on these loans is tax-deductible.
  • If you are over 59 years of age consider using your pension funds (401k and IRA). You pay no penalty if you follow the rules. You may withdraw your funds under certain circumstances. Again, check with your accountant.
  • You may use the cash value of your life insurance by keeping your current coverage.
  • Get a car loan or sell your fully paid, or expensive car to buy a lower-priced car to get some additional cash. Remember: Monthly car installments work against you in obtaining mortgage loans.
  • Get a construction loan.

Construction loans are not based on the purchase price but on the estimated value of the property. This is good for you because you buy fixer-upper foreclosures at below-market price, and obtain a loan based on its future selling price. In other words, construction loans cover your purchase price and your fixing up costs. For more information on home improvement financing: U.S. Department of Housing and Urban Development (HUD)

Consider buying foreclosures with another real estate investor

If you still expect difficulty in getting sufficient amount of loans for your purchase of foreclosure properties, consider partnering with other investors to pool your financial resources.

Work with more than one bank: You are not obligated to borrow from one bank only. Contact several lenders and see how much you can borrow. Lenders would love to work with successful entrepreneurs in any field, including real estate foreclosures.

Hard money?

Why not considering hard money at a higher cost when profit potential is high? Higher cost of hard money will not be much especially if you plan to flip or sell foreclosure home.

Buy directly from lenders who have largest inventories of foreclosure properties

Start searching online and with free listings of bank foreclosures and government foreclosures.