Savvy real estate investors know that some of the best deals can be found in foreclosed properties. A foreclosure occurs when the borrower is unable to make the required monthly payments anymore. In this case, the lender will usually try to recoup as much money as possible through the forced sale of the home.
Since most of us don’t have hundreds of thousands of dollars lying around, the average investor will need to find some means of financing foreclosures.
Financing a foreclosure can usually be done in the same manner as with a traditional home purchase. Here are the things you’ll need to keep in mind when looking for financing:
Some foreclosure properties take longer than others, so you may not be able to lock in that low interest rate forever.
If you have equity in your primary residence and don’t want to deal with financing companies, you could always turn to a home equity loan, which is something extremely popular nowadays and can be used to finance everything from college tuition to remodels and room additions.
What is a Home Equity Loan?
With a normal mortgage, your job/salary is used as a basis for giving you a loan. But with a home equity loan, the equity in your primary residence is used as collateral for the loan. Some lenders also offer a line of credit that allows the borrower to take out money as needed and pay back the amount borrowed plus interest. This is called a Home Equity Line of Credit or HELOC.
Do I Have to Own My Home to Get a Home Equity Loan?
Yes. You must own a home in order to qualify for a home equity loan since it creates a lien on your primary residence.
How Much Can I Borrow?
Most lenders require a Loan to Value (LTV) ratio of 80% or less. The LTV is calculated by taking your mortgage debt divided by the fair market value of your property. As long as you have a means to pay back the loan (monthly income), most lenders will let you take out any amount up to 80% LTV.
Choosing the Right Lender
Since the supply of lenders is always greater than the demand of buyers, you should have a huge advantage when it comes to selecting a lender. As long as you meet the basic LTV and income requirements, feel free to shop around and find the best interest rates. Since it’s so competitive, lenders sometimes offer a no closing costs option so don’t be afraid to ask for it.
Are There Fees to Apply?
Generally, there will be some standard closing costs on a home equity loan, but you should be able to compare the costs and see which lenders offer the lowest fees.
Manufactured home financing can provide one of the best options to obtain a mobile home if you don’t have the down payment or credit for a traditional home purchase. If you know how to apply for a mortgage on a house, you’ll find there’s one major difference.
Have you ever noticed why loans on boats and cars tend to have higher interest rates than loans on houses? For lenders, the more mobile the possession is the higher the rate will be. Since mobile homes are somewhere in the middle, their rates tend to reflect that.
If you decide to go through with financing a mobile home, you’ll find that you won’t ever get the lowest advertised rates because of this “mobility”.
If you’ve got bad credit, set your fears aside. Financing a home with bad credit might be a little bit more work, but it’s definitely a viable option.
The only caveat is that you’ll have to concede to paying a higher interest rate. And the worse your score, the higher your rate.
In bad credit situations, lenders also tend to only offer adjustable rate mortgages (as opposed to fixed rate) so make sure that’s something you understand fully. You don’t want to be stuck with an adjustable mortgage when rates start skyrocketing up.
FHA Loans
FHA loans have been around since 1934. FHA stands for the Federal Housing Agency, which is part of HUD – US Department of Housing and Urban Development. Since FHA loans are insured by the government, you’ll often find that they are a much better deal than conventional loans.
FHA loans are a great option for home financing for people with bad credit since they are guaranteed by the government. Lenders are more willing to take on riskier borrowers since should you default the government is on the hook for the remaining balance.
Financing companies tend to loan out more money with FHA loans so be sure that you are able to make the minimum payment each month. Additionally, there isn’t always a huge discount on the interest rate, so be sure to compare with the rates you get from other more traditional lenders.
