Financing and Buying Bank Foreclosures

  1. When you are using financing, and are very confident that you will get the financing, you may make the offer not contingent on financing. It can be a like a “Cash Offer” even though you are getting the money from a lender. What you are in essence saying is that you know you will get the financing, so to make your offer stronger you are making it a not contingent upon financing, subject to only clean title. If you’re financing should fall through then you are agreeing to give the earnest money to the lender as liquidated damages. When making an offer like this, the Title Company still needs to know you are using financing to make proper arrangements with your lender for the paperwork to close the deal.

Imagine you are a seller and have 2 identical offers except one is contingent on financing and the other is not contingent. Which would you accept?

  1. The next best strategy is for you to get yourself pre-approved for financing. This is when you make application, and your lender verifies everything, and then your lender makes a commitment in writing that they are willing to give you a loan. This approval is only subject to an appraisal of the subject property and clean title. Now even though you are getting financing I can present your offer from the strongest position possible, “same as cash, just subject to title and an appraisal.”Now some loan officers in the market place like to use the term pre-approved loosely. They give buyers a pre-approval letter, even though nothing has been verified; it is still subject to verification of income and or credit. This is really only a pre-qualification.

    Also, when you know you will be buying a house that needs some work, you must inform your lender of this up front. You do not want to pay for an appraisal then have the lender say they won’t finance the deal because of the work needed. There are only a few lenders in today’s market that will finance a home purchase with work to be done, and a lot will not.

    When it comes to the typical condition of REO properties, they usually need work. It can range from almost move in condition, minor cosmetics, to a lot of remodeling. The youngest one I have had is actually new construction not completely finished, to a couple years old to, I have had some built in the 1800’s. The more work an REO needs, typically the better price one can get.

    –     One type of loan that some lenders provide for homes that need work is the FHA 203K loan. A loan that allows only 3.5% down, and covers the acquisition and remodeling cost in one loan package. Minimum of $5,000 up to $35,000. I have several lenders I can refer you to for this loan.
    –     Fannie Mae sometimes make a remodeling loan available on their REO’s. Sometimes with only 3% down.
    – Conventional financing with 5% ora larger down payment is a possibility with some lenders.

  • Hard Money Loans come from individuals and investment groups that will

provide short term loans (up to one year usually) at higher than normal cost.

  • Private Money is any individual that will loan you money at a cost above

traditional lenders, and typically rates below Hard Money Lenders.

When you are attempting to establish a relationship with a Realtor who can be a valuable resource for you, and you want to get the best possible deal on a property, then it makes logical sense to approach these opportunities from your strongest position possible.

Help me help you. I’ve learned the tips I share herein from years of experience.

Follow my advice, use a reputable lender, and get pre-approved at a minimum. Provide your statement of proof of funds, quickly and right up front. Because, why not? Establish yourself as a person of action who is serious about making a good deal.

Test Your Knowledge:

Imagine you are a seller and have 2 identical offers except one is contingent on financing and the other is not contingent. Which is the best to accept?

  1. neither, require cash only
  2. not contingent
  3. owner financing
  4. contingent

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June 6, 2017

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