How To Buy A Foreclosure Without Cash
Buying a foreclosed home in today’s depressed economy is an excellent idea. You can either renovate the home and live in it or sell it for a big profit. Either way, it is a great deal. But one of the problems that people face while trying to seize this opportunity is cash. Most people do not have that kind of ready cash to buy the property.
However, this is not a deal-breaker when you want to buy a foreclosed property. In this guide, we show you how to buy a foreclosure without cash.
What do foreclosed homes mean?
Before we learn about how to buy a foreclosure without cash, it is important to understand what the term means.
Foreclosed homes are properties that have been legally handed over to the lender (usually a bank) due to the homeowner’s inability to make the mortgage payments.
Thus, foreclosed homes are bank-owned properties that go through foreclosure auctions, where the bank tries their best to recoup their money by selling the property.
If the property does not sell for any reason, it is referred to as real estate owned or REO properties. The lender or the bank continues to retain the ownership of the house. They often hire the services of a real estate agent to sell such properties.
How to finance a foreclosed home purchase without cash?
Obtaining the funds for buying a foreclosure home is the same as any other real estate property. So if you find yourself in a position where you do not have enough cash to finance the deal, you can always try the traditional financial options available to you. Some of the popular property financing strategies are as follows:
1. Mortgage
This is the most popular financial strategy used by prospective home buyers. You can avail of this option as long as you meet the conditional laid down by the lender. We strongly advise you to find the best lenders and thoroughly read the mortgage’s terms and conditions.
2. Borrow
The second option you can opt for is borrowing the money from friends and family. This is a more flexible option due to the personal relationship of the borrower with the lender. Moreover, this option makes more financial sense, especially when you are trying to buy a home without any personal cash.
3. Partner up
If you do not want to get into debt, you can choose to co-invest in the property and a partner. Real estate partnerships not only help you raise the money but also mitigate the risks.
4. Use your credit card
As a last resort, you can choose to purchase a foreclosure with a credit card when you are hard strapped for cash. You can request a cash advance to get the amount needed to move ahead with your plan of buying a foreclosed home.
Do keep in mind that you will have to pay a high rate of interest for the advance. So consider this option only if you have the means to repay the amount in the shortest possible time.
5. Try to secure an FHA loan.
First-time home buyers have the option of availing for a federal housing administration loan. The main advantage of taking an FHA loan is that you can get a zero-down loan. However, you can only buy properties that pass their strict guidelines.
Steps to follow to purchase a foreclosed home
Here are the steps you must follow to own a foreclosed home:
Step 1: Organize your finances
Before you start looking for a foreclosure home at auctions, you must use any of the above methods to secure your finances. If you think of taking a loan to purchase a foreclosure, it is in your best interest to prequalify and gain preapproval before starting the buying process.
Step 2: Find a real estate agent.
If you are a first-time buyer, it is better to hire the services of a real estate agent who is well versed in REOs and short sales. Although you may feel that doing the groundwork yourself will help you save money, enlisting a professional will save you time and money in the long run.
As these agents have many years of experience under their belts, they can show you properties within your budget and get you a good deal.
Step 3: Buy the foreclosed house.
The next stage is the execution stage. Here you have to place a bid for a home that is within your budget. While putting up the offer, ensure that you have enough money left for closing costs, home inspection, property taxes, and insurance.
You must also set aside some money for repairs and renovations. Apart from making the house more livable, it will increase its home equity.
Step 4: Arrange for the paid inspection and resolve liens.
After you have put up an offer, you will get a few days to arrange for inspections. When buying a foreclosure, you must get the house thoroughly inspected. Some of the checks you must get done are radon and termite check, sewer check, and water line assessment.
After dealing with the inspections, you must focus your energy on resolving the liens. As the previous property owner may have taken many loans on the foreclosed property, you must seek the assistance of a reputable title company to settle the liens.
Step 5: Repair, renovate, and move in.
The inspection process will reveal most of the repair needed to get the property up to the code. Once you have completed fixing up the home, you can move in and start residing in your new home.
Conclusion
On average, over 60% of the homes that banks take possession of through the foreclosure process are usually purchased through means other than cash. Even if you are short on cash, you can still buy a home through the methods listed in our how to buy a foreclosure without a cash guide.
We hope you found this article useful. If you have any comments, do share it with us in the chat box. Good luck!
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