Foreclosures Investing

Funding foreclosure investing

The way you fund your foreclosure investments will depend on whether you intend to buy properties at the pre-foreclosure, public auction or REO (Real Estate-Owned) stage. Private and government lenders provide financing for REO properties, but not usually for pre-foreclosure sales and public auctions.

The highest profits are to be made by buying properties at the pre-foreclosure stage, but this may require a sizeable cash lump sum. Buying pre-foreclosures is usually only an option if you have existing savings or assets that you can liquidize quickly to provide cash. Avoid extreme measure such as refinancing your own home to raise investment capital. If there is any problem with the deal or you face financial problems of your own, you could lose everything.

Once you have purchased the home, you may then be able to apply for loans to fund home improvements to increase the value of the property when you sell it on. If you intend to make profits by fixing up a run-down property, be realistic about the costs. Work out an itemized budget for expenses before you make an offer on the property and build in an extra allowance for unforeseen problems.

Auctions also require full payment at the time of sale in the form of cash or cashiers cheques. Because there is rarely an opportunity for a detailed inspection of the property and no title insurance is provided, this is much more of a gamble. Set aside a cash lump sum for the sale, work out an estimated repair budget and set a maximum upper limit for bidding. If the bidding goes above this limit, walk away.

Buying REO's is a much easier proposition. Most REO's are sold on by loan providers (i.e. banks and mortgage institutions), by loan-insurers such as the Department of Veterans Affairs, and by secondary mortgage brokers. These organisations provided finance for the original property and they are usually keen to provide finance to new buyers to help recover their losses from the foreclosure.

Buyers with sound credit can take advantage of the full range of financing products, including low down-payment and fixed-rate mortgages. You can shop around, go through your existing mortgage company, or contact the original lender to find the best financing deal. HUD (http://www.hud.gov), Fannie Mae (http://www.fanniemae.com) and Freddie Mac (http://www.freddiemac.com) all offer excellent financing deals for their ex-foreclosure properties.