Foreclosure Loans

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One of the problems with foreclosure investing is that you need large amounts of investment capital. This is where foreclosure loans can come in handy. However these are not available for all kinds of foreclosures. As a rule, you can only obtain financing for REO's (Real Estate-Owned property) and the profits from these properties tends to be lower than if you buy at auction or pre-foreclosure.

This said, buying REO's does provide more security than buying at auction or through an independent pre-foreclosure sale. As long as you have a good credit rating, you should be eligible for the full range of home financing options, including mortgages and home loans with low down-payments. You can also include costs of renovations in some loans.

Many lenders offer favourable loan conditions for people who buy REO's that have come to them from previous bad debts. This is particularly true for properties sold as a result of foreclosure on home loans insured by government departments and large private housing agencies.

The US Department of Housing & Urban Development (HUD, http://www.hud.gov) offers huge numbers of REO's for sale and as a major loan insured it can arrange a home loan with a low down-payment and all the closing fees included in the price of the loan. Similar deals are available on REO's sold by the Department of Veterans Affairs (VA) through the private real estate broker Ocwen Financial Corporation (http://www.ocwen.com).

The private home loan providers Fannie Mae (http://www.fanniemae.com) and Freddie Mac (http://www.freddiemac.com) both end up taking ownership of large numbers of homes as a result of foreclosures on home loans. These are sold on as REO's and buyers can obtain loans with a low down-payment through either organisation.

However, it's important not to overstretch yourself. While it may be true that you have to spend money to make money, a foreclosure loan is a debt like any other. You will have to pay the monthly repayments on top of any repayments you already have on existing loans.

If you can't keep up repayments, you may find yourself facing foreclosure yourself, particularly if you find it difficult to sell the property or go over-budget on renovations. Is generally regarded as a very bad idea to refinance your existing home to provide capital for foreclosure investing.