Buying Foreclosures at Auction: How Hard Money Loans Can Help
Have you ever considered buying a foreclosed home with a hard money loan? If so, you know that there are several steps to go through. For instance, you have to search the market for a property, get preapproved from a hard money lender, win the bid at auction, and finance the property. That said, before investing in foreclosed homes, you’ll need to know what it takes. So, read along as we go through the steps to buying foreclosures at auction.
Contents of This Article:
- Why Do People Buy Foreclosed Homes?
- How Does a Foreclosure Auction Work?
- Buying Foreclosures at Auction With Hard Money
- Step-by-Step Buying Guide for Investors
- Find a Hard Money Lender Near You
Why Do People Buy Foreclosed Homes?
Buying foreclosed homes with hard money loans can be an excellent strategy for some investors. A foreclosed home is one that the lender or bank seizes. Generally, this happens because the homeowner cannot keep up with mortgage payments or property maintenance.
So, when you see a foreclosed home on the market, you may notice that it’s less expensive than other comparable homes. In fact, the main reason people buy foreclosed homes is that they’re significantly cheaper than other homes on the market. This is because they’re priced by the lender, who wants the property gone as soon as possible.
There are a few different ways to buy a foreclosed home. For instance, you can buy the home right from the lender, buy it through a short sale, or purchase it at an auction. Next, we’ll go over how foreclosure auctions work.
How Does a Foreclosure Auction Work?
Foreclosure auctions may look different depending on where you’re buying real estate. Usually, it’s a pretty large event with several homes up for auction. Since it’s such a large event, auctions are usually held in large buildings like a courthouse or convention center.
Depending on the scenario, auctions may happen in real-time or over a few weeks, either in person or online. That said, the types of properties you’ll find at a real estate auction range from single-family homes to multi-family homes, commercial properties, and more.
When it comes to bidding for properties, you generally have to register in advance and submit proof of identity. Additionally, some auctions require a small deposit to ensure that you’re serious about bidding. You may also need to provide more financial information depending on where you’re bidding. As such, it’s crucial to research and find out your responsibilities as a bidder.
Once you’ve gathered the information you need about properties and buying foreclosures at auction, you can participate. When the auction starts, the auctioneer takes bids from interested participants. The auction closes at the end of the session, and the property is sold to the highest bidder.
Depending on the auction, you may have to immediately pay a 5% to 10% deposit and the rest of the balance shortly after. That said, there are several ways to finance your investment, including hard money lending. Here’s how it works for foreclosures.
Buying Foreclosures at Auction With Hard Honey
While there are several ways to fund an investment property, one common way is with private lending or hard money loans. However, it can depend on your investment property and strategy. For instance, private money lending is most popular for fix-and-flip properties or if you’re using the BRRRR method.
Hard money loans are unconventional loans with fewer requirements and faster funding than traditional bank loans. They usually serve as short-term financing, as you need to pay them back quickly, usually within 12 months. Additionally, interest rates for hard money loans are higher than bank loans due to the convenience and ease of getting one.
You may consider a hard money loan when buying a property to fix and sell for profit. That way, you can pay back your loan within the alluded time. Luckily, when it comes to buying foreclosures, many of them are properties that need fixing.
Hard money loans can be highly beneficial for those looking at foreclosed homes. However, knowing the steps to buy a foreclosed property with a hard money loan is essential. Read along for a step-by-step guide for investors.
Step-by-Step Buying Guide for Investors
Hard money loans are beneficial for some investment strategies more than others. Ultimately, research it’s important to decide which financing strategy is right for you. Then, it’s time to prepare. That said, if you’re looking to get a hard money loan for a foreclosed home, you’ll want to follow these steps.
- Research Properties
- Register to Bid
- Get Approved for a Hard Money Loan
- Win the Bid and Make a Down Payment
- Fix and Flip the Property
The first step to buying foreclosures is searching for applicable properties and auctions. That said, there are several ways to find foreclosure auctions near you. For instance, you can search online sites such as Auction.com or Foreclosure.com. Or, you can look at local newspapers, bank websites, and more. Then, you can find a foreclosed home to bid on at an auction.
Register to Bid
Before you start the bidding process, you have to register as a bidder. Usually, during registration, you’ll have to give proof of identity and a credit card number to guarantee that you’ll go through with the purchase. They may charge you a small percentage if you don’t go through with it. However, it’s best to research your local laws to ensure you follow the right procedures.
Get Approved for a Hard Money Loan
You also have to get preapproved by a hard money lender before you can start bidding. Luckily, it’s not too hard to fill out an application for a hard money loan and get approved quickly. Once you’re approved, you often need to provide documentation like your driver’s license, tax returns, bank statements, property information, and more.
Win the Bid and Make a Down Payment
Once you’re approved for a loan and win the bid on your desired property, you’ll usually have to pay a significant down payment. Then, when you’re buying foreclosures, the rest of the money is due within a certain period. However, in some states, you must pay for the property in full immediately after the auction. Make sure you research your local laws and real estate auction rules.
Fix and Flip the Property
Once you have the property and financing figured out, the hard work sets in. If you’re planning on fixing and flipping the property for profit, you’ll want to start renovating and repairing it immediately. That way, you can sell it quicker and pay off your hard money loan faster. Then, once you’ve renovated the property, you can sell it, pay off your loan, and earn significant profits.
Find a Hard Money Lender Near You
Buying foreclosures with a hard money loan is pretty straightforward if you follow the steps above. However, you’ll need to find a hard money lender near you throughout the process. Luckily, Maryland Hard Money Lenders is here to provide funds for investment properties in Maryland.
Our team of real estate professionals works to help other investors grow their personal wealth. Whether you’re looking for a fix-and-flip loan, a new construction loan, or bridge financing, we’ve got it covered. Contact Maryland Hard Money Lenders or visit our website to start your loan application today.