Buying Foreclosures

How much money do you need to get started?

Many people are interested in investing in foreclosures, but after looking at their finances, they are unsure of whether or not they can afford it. If you are “financially challenged” this article is for you!

First, you should know that buying a foreclosure is different than buying any other house. Even the financing is different! The escrow is very short, between the time you sign for the house, and the time you close (much shorter than it would be if you were simply buying a house!).  Because of the short escrow time, there isn’t time for loan approval, or any of the other typical measures that you go through to buy a house.

So the question is-how do you purchase a home if you don’t have time to get a loan?

The answer-you come prepared! It is imperative that you know the amount that you will qualify for before you even make a bid on a house. This will ensure that you will be able to prove that you can purchase the house, and can actually close as soon as they are ready. Make sure that when you are placing your bid, that it is LESS than the amount of your loan-for two reasons. First, you have to remember that this is all the money you are going to get from the bank-and that foreclosures come “as-is,” meaning they usually need repairs and/or renovations. Second, you never know what unexpected expenses are going to pop up in the time you have the house. You will probably have to pay closing costs twice-the time that you buy the house, and possibly when you sell the house (this is often a powerful bargaining tool when people want to buy the home but don’t have the cash up front to pay the closing costs). As you can see it is extremely valuable to have some “extra” money around for anything that might come up.

When looking for a loan to buy a foreclosure, you have several different options that are available to you. The best way to get the absolute best deal is to shop around just a little bit. Visiting your bank is a great place to start, although they often will not give you the best deal. Your next step should be to visit a separate mortgage lender. You can often get a great mortgage with a good interest rate could end up saving you money.

If you are simply looking to buy a foreclosure, fix it up and sell it, paying a second mortgage can sound scary. However, if you do the research about selling homes in your area, and you can predict what kind of house is under high demand, and in what neighborhoods houses sell fast, and what things people are looking for in a house in your area-and this will help you sell the house quickly once you are finished with renovations and repairs, and will help ensure you only have to make a few monthly mortgage payments. And remember-the return on a foreclosure can sometimes be up to $30,000-$50,000-definitely worth a few months work and mortgage payments!