How to Finance a Foreclosed Property
Foreclosed properties often present opportunities for home buyers to purchase homes at drastically reduced prices. The reason for the reduced price on a foreclosed home is that the bank, or deed holder, needs to get that asset off the books. A foreclosed home represents an asset that is a net loss on the bank's books. As banks and other financial institutions try to balance their books, they have sales. And if the home doesn't sell in one month, they'll lower the price again. Whether you're bidding at an auction or browsing through listings of foreclosed homes, knowing how to finance a foreclosed property can help you be ready to make the purchase.
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Things You'll Need
- Credit report
- Salary history
- Employment history
- Tax returns
- Bank statements
Instructions
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Gather your financial records in preparation for contacting a bank or other financial lending institution. Generally, there are a number of companies that finance mortgages. You're going to want to make an appointment with them and get preapproved for a home loan. You might also want to get a second mortgage on your existing home. In either case, you'll need your financial records. Collect copies of your recent bank statements, three years of federal tax returns and recent pay stubs. If you're recently divorced, you might be required to show a copy of the divorce decree and any child support or alimony agreement.
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Know your credit history. By obtaining credit reports from the three largest credit reporting agencies---Equifax, Experian and TransUnion---you'll know what the lender is looking at when considering you for a loan. You'll be able to explain anything on the report that looks negative. Be prepared. The Fair Credit Reporting Act gives you the right to see your credit report.
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Decide on whether you want to go with a mortgage lender or a local bank if you're looking for a new loan. If you're going to finance a new home with a second mortgage, contact the lender on your existing home. Make an appointment with the lender, explaining the purpose of your visit ahead of time, so the lender can have the appropriate paperwork prepared in advance. This will save time and make the visit shorter.
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Bring your paperwork to the meeting and get your preapproval or your second mortgage paperwork. You'll need the paperwork when you bid on a foreclosed property. To be as flexible as possible when looking for foreclosed property, get preapproved for the largest possible price. You don't have to spend this much, but it will give you the maximum amount you can spend. The best deals will often cost less than your maximum approved amount.
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Now that you have the financing, you're ready to go bargain hunting if you don't already have a foreclosed property in mind. Even if you do, consider taking one last look through foreclosed property listings. Search newspapers, real estate listings and online for foreclosure sales.
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Visit the properties you're considering making a bid on. Don't rely on pictures alone. Check the property's plumbing, electrical circuits and structural integrity. Know what you're bidding on. Also, ahead of time, you can check with county record keepers to see what the property taxes are on the foreclosed property.
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Make a bid at an auction or make an offer if it's a listing. You can try offering less than the listed amount. If the property has been on the market for a period of months, the deed owner will typically take an offer for less than the listed amount. When the offer is accepted or you get the winning bid, complete the paperwork with your lender. You're now the owner of a foreclosed property.
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Tips & Warnings
Having a professional demeanor will help make a positive impression when applying for loans to finance your property. Consider making a joint application with someone who has a better credit score or employment history.
Make sure you don't overstretch your budget with the purchase of a foreclosed home. Even though the property might be a great deal, you could end up not being able to afford a monthly budget.
Resources
- Photo Credit morgueFile
