Foreclosure Financing

Foreclosure financing in financial crisis

Financial crisis of 2008 made lenders more cautious about new lending. However, banks are still in the business of borrowing and lending. And, they have historically the highest level of foreclosed properties that they must sell.

Here’s your financing sources available in financial crisis:

Get pre-approval letter for conventional lending: Look at ads placed by financial institutions such as Countrywide, Wachovia, and Washington Mutual overtaken as a result of the financial crisis in 2008. They keep financing real estate as usual. Major banks that acquired these institutions continue their business of real estate financing as well. Business is still as usual.

Ask lender that keeps foreclosures in its Real Estate Owned (REO) portfolio to finance your foreclosure purchase: Banks and other lenders have large inventories of foreclosed homes. They want to get rid of their bad (non-performing) loans related to those foreclosure properties. Non-performing loan turns into performing loan when you become their borrower. Nonpaying borrower is replaced by paying borrower. Ask lender for win-win solution.

Assume current mortgage loan: Some loan agreements may have a provision allowing assumption under certain conditions. Ask lender of REO if you can assume its nonperforming loan even if there is no such provision. Some call this type of financing as taking over "subject to" existing financing. Lender will be happy to have a borrower who assumes all of the obligations of defaulted borrower.

Home equity loan for short period of time: If you are planning to flip or sell foreclosure property shortly, the cost of short-term financing will not be a big burden. Obtaining home equity line of credit is easier than conventional loans.

Consider buying foreclosures with another real estate investor: If you still expect difficulty in getting sufficient amount of loans for your purchase of foreclosure properties, consider partnering with other investors to pool your financial resources.

Work with more than one bank: You are not obligated to borrow from one bank only. Contact several lenders and see how much you can borrow. Lenders would love to work with successful entrepreneurs in any field, including real estate foreclosures.

Hard money? Why not considering hard money at a higher cost when profit potential is high? Higher cost of hard money will not be much especially if you plan to flip or sell foreclosure home.

Posted: November 5, 2008 ...................................Post a comment
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