A brief look at your financing options when buying homes in pre-foreclosure
If you are considering buying a home in pre-foreclosure, your financing options are pretty much the same as those you would get when you buy a traditional property. The difference in the process is timing. Parts of the process in buying a home in pre-foreclosure will move quickly, and parts may drag on. Knowing that ahead of time will help you prepare.
To understand the options for financing pre-foreclosure buying activities, it is important to understand the pre-foreclosure process. When a homeowner goes into default on their home loan, the home loan servicer is required to follow a specific legal process prior to foreclosing. The first step in this process is the issuance of a Notice of Default (NOD.) The NOD is an official notice that must be given to the homeowner. This notice usually gives the homeowner three to five months to either take care of the defaulted payments and catch up on the loan, or sell the house to someone else and use the money to pay off the loan. If one of these two things does not occur within the time allotted by the lender, the lender can proceed to take back the home from the homeowner through foreclosure.
Pre-foreclosure sales can only occur if:
- A homeowner is at least two months delinquent in paying on the mortgage
- The house in question appraises for at least 70 percent of the principle remaining amount of the loan
- The sale price is at least 95 percent of the appraised value.
Due to the fact the home must appraise for at least 70 percent of the principle owed, some homeowners will not be eligible to offer their home for sale as a pre-foreclosure in areas of the country where property values have fallen.
If you are buying a home in pre-foreclosure that is currently owned by the federal Department of Housing and Urban Development (HUD), there are a few additional requirements to their program for such homes (click here for more details.)
When you are looking at financing, purchasing a home in pre-foreclosure can save you a lot of money. Nonetheless, you will still need to find financing quickly, since the property seller will be working within a somewhat limited time frame imposed by the lender.
If you can get pre-approved for a home loan, this can speed the process along quite a bit. Pre-approval is essentially your lender’s stamp of approval that if the house you are planning to buy meets the criteria the lender has established for financing, you will get the loan. It is important to note that pre-qualification is not the same as pre-approval, since getting qualified just means that you meet the bank’s pre-determined requirement to get a loan, but haven’t gone through the approval process. There is a big difference between the two and getting pre-approved is optimal, since it means you are ready to buy.
Buyers need to understand that when buying homes in pre-foreclosure, financing options are pretty straightforward and simple, although there is a need to move quickly in order to meet the seller’s time frame with the foreclosing lender. Having the help of a seasoned professional is always advised and RealtyNow can help by connecting you to a local real estate professional with plenty of experience.