How to Get a Loan to Buy a Foreclosed Home

Buying a foreclosed home can be tough but not impossible.

Getting a loan for a property in foreclosure works similarly to getting a loan for a home that is not in foreclosure. The process involves locating a property you can afford, approaching a lender and completing the application process, submitting the proper documents and waiting for closing. The main difference between getting a loan for a property in foreclosure is that you must show proof of funds to the seller (i.e. the bank) before you can be considered an eligible buyer.

Things You'll Need

• Prior year's tax return
• Current W-2 and paycheck stubs
• Bank statements
• Real estate agent

Instructions

1. Locate the home you wish to purchase. This can occur in several ways. Banks often list the properties they currently own on their websites. There are numerous foreclosure databases available for your perusal; however gaining access to these databases may cost you a few dollars in subscription fees. You can also locate foreclosed homes through a real estate agent. Keep in mind that most foreclosed properties have been vacant for quite some time and will probably need some maintenance and cosmetic fixes after you purchase them and all foreclosed properties sell as-is.

2. Contact a lender. The lender you choose should be based on your own personal preferences and who you believe will be able to get you financed. Buying a foreclosed home requires that you be able to show proof of available funds in the bank or the ability to get a loan. The proof required will be more extensive than simply submitting a pre-approval letter. You can utilize a bank, credit union, FHA or private mortgage lender to get a mortgage on the property.

3. Complete the pre-application process. As stated before, you will need to be able to secure financing (and prove it) before you will be able to begin the process of buying a foreclosed home. In most circumstances, a lender will pre-screen you by asking a few pertinent questions about your finances and debt, pull your credit and even require proof of income in order to pre-qualify you to buy a foreclosed home. After that, you will receive the proof you need to move forward.

4. Contact a real estate agent. If you choose to utilize other methods to locate your foreclosed property, now is the time to start talking to a real estate agent. Your best bet is to contact the agent listing the property for sale, but feel free to use any agent you feel comfortable with.

5. Start negotiating. Foreclosed homes are usually listed below their market value for two reasons: The lender wants to offload the property as quickly as possible, and the property is usually in need of some repairs and maintenance. The lender recognizes this and knocks a little off the top to compensate you for your time and expense. But even though the property is listed below market value, it doesn't mean that you can't negotiate on the price a little. It simply means that the range you have to work with is going to be tighter than if the property was on the open market. Work closely with your agent to submit offers and counter offers until you are satisfied with the deal before you sign.

6. Complete the loan process. After you have reached an agreeable sales price, complete the loan process with your lender and close the deal. Congratulations, you have just purchased your first foreclosure.

References

• Kiplinger.com: How to Buy a Foreclosure