November 24, 2020
Advice for Finding Home Loans to Buy Foreclosed Homes
Fortunately for homeowners and the United States at large, the foreclosure rate has dropped every year since 2011. Foreclosures take place after homeowners stop making regular, full payments on homes taken out with mortgages. Although they’re more likely to happen to the less fortunate, they still happen to middle-class and even better-off people, too. Homes that have been foreclosed on are often sold soon after at auction by financial institutions, often at below-market prices. Many foreclosed home sellers only accept cash — but that’s not true for all of them.
Understanding How Home Loans Work
Home loans, or mortgages, are typically used by people who plan on immediately moving into the homes they need the mortgages for. Although consumers with solid credit histories can be approved for mortgages on homes they plan to sell or invest in, financial institutions usually don’t make home loans for this purpose.
This is even more true for consumers planning to buy homes that have been recently foreclosed on. Lenders are typically hesitant to make such offers, and financial institutions acting as home sellers usually just take cash for recently foreclosed-on homes.
Making Sense of Your Competition
Lenders that extend offers for risky investment purposes like buying foreclosed homes usually work with private equity firms, real estate companies, and individuals or groups of private investors who’ve proven their success in flipping homes. All of these groups are easy to trust.
Here are some things that can help you receive financing for buying foreclosures:
- Maintaining active, working relationships with financial institutions in a commercial capacity.
- Having a great reputation around wherever you live or plan on doing business.
- Stellar personal financial histories always help, too.
Tips for Getting That Home Loan to Buy a Foreclosure
Prospective borrowers who approach lenders shortly before they need a loan are less likely to be approved. In practice, the best way to maintain relationships with individuals who work for financial institutions is to regularly work with them or maintain good connections among your professional network.
The 203(k) loans, says Zillow, are also ideal for people who are looking for home loans to buy foreclosures. These loans are backed by the federal United States government and make it easy for borrowers to tie expected home improvement costs into them. In order to qualify, you must pay out-of-pocket for a consultant certified by the Federal Housing Authority to inspect projected costs. Also, know that 203(k) loans usually come with higher interest and require greater down payments.
Home equity line of credit loans, also known as HELOC loans, may be an alternative source of funding worth pursuing. Policygenius, a financial educator, warns these should be one of your last resorts, as they have significantly higher interest rates than mortgages. Home equity line of credit financing is best used sparingly and only if you’re positive you can afford to pay it back promptly.