If you are in the market to buy a foreclosure property the first thing you need to do is secure your means of financing before you seriously start looking.
Securing your financing beforehand will give you an estimate of what you can afford, how much you will need to initially invest, and realistic monthly payments on different price ranges. It will also enable you to act quickly once you find a property that you wish to move on. Often foreclosure properties move fast so this it’s crucial to have all of this in place when you are ready to make an offer. If you have already secured financing you will demonstrate to the foreclosing entity (bank, HUD, etc) that you are a serious buyer and are ready to move quickly.
Finding the right lender is critical to purchasing foreclosure properties. Few sellers will think of you as a serious buyer unless you have your finances in order. That means you need to be pre-qualified before engaging in discussions with a seller or the foreclosing entity. Sellers need to make sure that a buyer is in strong financial position to purchase the property before they will seriously consider any offers. So secure the financing even before you start window shopping online or with an agent.
Work with a lender who understands how to put together a foreclosure transaction, and can guide you through each step of the process, such as ensuring that a property is eligible for the type of loan that you will be securing. Also keep in mind that not all lenders finance foreclosure properties or know how to put together a loan package on a foreclosure transaction. For example if you are buying a HUD home there are certain time frames that must fully be understood. When HUD says they need “X” many days for the closing papers to arrive at the title company for HUD review, they mean business days.Lenders not aware of this fact are often late with closing docs which can jeopardize the transaction.
Also because of the mortgage crisis, loans are getting harder and harder to close. Having an experienced loan officer that knows the ends and outs of financing foreclosures, short sales, HUDs, etc in this changing market is crucial. It is often a good idea to work with a local mortgage company that knows the market. There are certain websites that feature foreclosures and recommend lenders. These are always a good place to start when searching for a good foreclosure transaction lender.
Once you have found a lender you are comfortable with it is time to decide what you want to pay a month and how much of a down payment you can commit to the transaction. While your lender will qualify you and tell you what you qualify for on paper, this amount could very well exceed what you should be paying per month. This has a lot to do with your lifestyle which is not always reflected accurately on a credit report. If your lender tells you that you qualify for $1500 a month however you are only comfortable with $1200 per month please let the lender know this. Your lender when putting together your preapproval letter can reflect the loan amount and sales price range you should be looking in, which should be determined off of your desired monthly payment, not your max qualified amount. If your agent sees a higher amount then they could pressure you into looking at higher prices. It’s also not good for the selling side to see your max qualified amount for obvious reasons, especially when submitting a bid on a foreclosure.
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