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How to buy and finance foreclosed homes

How to Buy and Finance Foreclosed Homes

A foreclosed home is a home that has been repossessed by the lender from a delinquent borrower. These properties are sometimes, also, referred to as REO properties, distressed properties or bank-owned properties and are, generally, what homeowners or investors would consider a good deal due to the low price of the property.

Locating Foreclosures

To locate foreclosed property in the areas that you are interested in, there are several things you can do.

  • You can talk to a Realtor about the foreclosed properties in the areas that you are interested in. Your Realtor will search the MLS or the listings within her office for foreclosure properties that are available. If you are interested, she can set up an appointment for you to go and view the properties and inspect the condition of each property.
  • You can browse through the classified sections of the newspaper and look under Sheriff’s Sales, Foreclosure Notices or Auction Sales for foreclosed property.
  • You can, also, contact the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), or the Veterans Administration (VA) to get information about foreclosed homes in the areas that you are interested in.

Make the Offer

Your Realtor should research the comparable prices of other properties within the areas so that you will have an idea of what you can offer the lender.

Once you have determined your offer amount, you can make an offer either via your Realtor, by submitting a bid on the property at the foreclosure auction or you can submit a sealed bid directly to the lender.

After you have decided on a property and made an offer, it is a good idea for you to retain an attorney to research the property for any existing problems or liens on the property and to represent you at the closing.

Financing Foreclosed Property

You will need to decide how you will finance the property if you are not purchasing it outright. It is a good idea to calculate and plan how you will purchase your foreclosed property prior to making an offer on property.

According to the article, “Foreclosure Financing: How to Buy Foreclosure Real Estate,” posted at RealtyTrac.com, to finance a foreclosed property, there are several sources that you as a homebuyer or investor can consider to raise the capital that you need.

Some of these sources include obtaining capital from private investors, personal investment capital, from a financial corporation, applying for a conventional mortgage loan or obtaining the capital that you need from revolving credit card lines of credit or from an equity line of credit. If necessary, you can, also, utilize several of these sources to purchase the foreclosed property that you are interested in.

Bad Credit Home Loans: Home Loan Scams to Watch Out For

Many unscrupulous lenders exist who do not care about your financial position and will, in fact, target vulnerable people who are desperate for home loans. Mortgage scam experts prey on the badly informed and/or those desperate to get financial relief at almost any cost.

Bad Credit Home Loans Defined

A mortgage loan is a loan secured by real estate, that serves as collateral for the loan. If the loan repayments are not met, the mortgage contract gives the lender the right to take your property and sell it to pay off the balance of the mortgage loan. Typically a lender needs to have a good credit history, a deposit (down payment) and adequate income in order to repay the loan. A bad credit home loan is possible to get, in fact many lenders will compete to get your business, provided certain conditions are met. Usually interest rates are far higher because of the risk to the lender.

People get scammed every day, so be alert to the following signs:

Bad Credit Home Loans Payment Terms

Some lenders offer to save you from foreclosure by refinancing your mortgage. All looks good until the mortgage term nears its end, then a hidden lump sum balloon payment needs to be paid. If this cannot be met, you risk losing your home. Always read terms thoroughly before signing anything, or take the contract to a lawyer who can help.

Home Loan Scam – Signing over a Title Deed

Warning bells should ring if a lender offers to help you avoid foreclosure by signing over your property to him or her. Obviously this gives him or her the power to sell your property from under you. Other fraudulent lenders will offer to buy your home and sell it back to you when your finances improve, and they usually don’t.

Home Loan Churning

A lender will offer a new home refinancing loan regularly in order to free up cash. This sounds tempting but you have the potential of being trapped in a cycle of higher interest, penalties and fees. Always read refinancing terms carefully and don’t be lured into refinancing your home loan for trivial reasons.

Bad Credit Home Loans – More Scams to Watch out for

  • Be wary of lenders who try to get you to sign quickly, rushing you so that you don’t read the documents carefully.
  • Some lenders may resort to dishonest tactics, such as getting you to falsify your income on applications.
  • Be wary of unsolicited calls, letters or e-mails offering you a bad credit home loan.
  • Stay away from offers with upfront fees to cover “application processing” or insurance costs.