Buying A Foreclosed Home With Bad Credit
If you have bad credit, your best option is to take time to build your credit. This will allow you to get better mortgage terms and save money in the long run.
If waiting is not an option, you could try an FHA loan. If your credit score is 580 or above, youll can put as little as 3.5% down. If your score falls between 500 and 579, youll need 10%.
The problem with an FHA loan is that the property must meet FHA standards. Normally, the seller would make any repairs needed to meet these standards. But with a foreclosure, the home is sold as is.
This issue can be solved by looking for foreclosures sold by HUD, the federal housing department, which are typically in better condition and meet FHA standards.
Make A Competitive Purchase Offer
If the home is in preforeclosure, your real estate agent will need to present the offer to the individual who currently owns the home.
If youre looking at a foreclosed home thats headed to auction, youll need to contact the trustee or attorney whos running the auction to ask any questions about the house before the auction takes place.
A trustee is a third party who runs a foreclosure auction on behalf of a lender or government agency. This official accepts the bids during an auction.
If the house is REO, your agent will present your offer directly to the banks listing agent.
A buyers agent will never have direct contact with the bank. The process is similar for government-owned listings: Your real estate agent will again present your offer directly to the government agency listing the home.
You might be tempted to make a low offer on a foreclosed home. Its true that foreclosed properties often sell for less than traditional homes. But if you make an offer thats too far below , the sellers might reject it.
Its important, then, to work with your real estate agent to make a competitive offer. Your agent will advise you on what this figure should be.
You should also include a contingency for a home inspection in your offer. This contingency says that the home sale cant be finalized until youve scheduled a home inspection of the property.
Final Thoughts On Bank Foreclosures In Canada
This is not an ideal situation. Actually, its scary and stressful. However, not panicking, taking action, and learning more about the process is the best you can do to try to get out of it without losing your home.
Foreclosure Solution #3: Speak with your lender or mortgage specialist to see if there are any options for loan modification to give you some relief in the short-term.
If you face a bank foreclosure or power of sale in Canada, be sure to consult with experts, and most importantly, dont do nothing!
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How To Protect Yourself From Foreclosure Scams
Get reliable foreclosure help and counseling through the government’s Making Home Affordable program. Or find a government certified housing counselor near you. Read more about foreclosure scams and find phone numbers to call for help.
Learn about your legitimate government-approved mortgage and foreclosure help options. Also be aware of these tricks that scammers use:
- Offering to act as a go-between with your lender or to negotiate with your lender to refinance your loan
- Dont give anyone your personal information, Social Security number, or bank information. Only share this information if you’ve confirmed that the company is legitimate.
Purchase Your New Home
Read your inspection and appraisal results and decide if the home in question is really right for you and whether youre okay with buying a home as-is. Contact your mortgage lender to finalize your loan if you have the money or skills to make any needed renovations. Your real estate agent will help you submit your offer and prepare you for closing.
Find a local pro.
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Buying Foreclosed Homes: What You Need To Know
If youre looking to buy a foreclosed home foryourself or to fix and flip youll want to be extrawell-prepared.
Thoroughly research yourlocal real estate market, the purchasing process, andthe players.
And above all, set your expectations to realistic.
It mightbe harder than you think to find a steal on a decent home. But if you keep atit you could see worthwhile savings on your purchase.
Hereswhat you should know.
Bankruptcy As A Preventative Measure
Bankruptcy does not deal with secured debt, so filing bankruptcy itself will not legally stop a foreclosure order. However, a bankruptcy proceeding can work as a proactive decision to eliminate other problem debt and improve your cash flow enough that you can afford to catch up on your mortgage payments.
When you file bankruptcy, you dont necessarily have to lose your home. If you can keep your mortgage payment current, Canadian bankruptcy law protects you. Rules around bankruptcy and mortgages say that a secured lender such as your mortgage holder may not cancel your loan just because youve declared bankruptcy or filed a consumer proposal.
In any bankruptcy proceeding, you do have to deal with any non-exempt equity in your home. For example, in Ontario, if the equity in your home is above $10,000, you will have to arrange to pay the equivalent to your Licensed Insolvency Trustee if you want to keep your house. To make these payments more affordable, you can consider a consumer proposal as an alternative to bankruptcy. Bankruptcy and home equity laws vary by province, so it is important to speak with a Licensed Insolvency Trustee about your situation.
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Talk To A Bankruptcy Lawyer
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What Is The Process For A Foreclosure
There are two main types of foreclosure:
- Judicial supervised by a court with formal legal proceedings
- Non-judicial non-court supervised
In both types of foreclosure, the homeowner receives the legal notice of foreclosure, the legal notice is published in the local paper , and the home is sold at public auction.
The process and timing of a foreclosure can vary by state laws, and many other factors. However, your mortgage company can begin preparing the default notice/foreclosure proceedings on your home as early as 60 days after you have missed your first payment. Thats why you should take action early to begin working with your mortgage company to resolve your payment problems immediately.
How Do You Avoid Foreclosure?The most important thingtake action now. You have nothing to lose by working with your mortgage company to avoid foreclosure.
If foreclosure is imminent, other options may no longer be available. However, you may still be able to leave your home without having to go through foreclosure. This means you wont have a foreclosure on your credit history and you may qualify for relocation assistance to ease your transition to new housing.
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Research The Different Methods For Buying A Foreclosure
As with any major purchase, the first step in purchasing a foreclosed house is research. There are several ways to buy a foreclosure. The best method for you may vary depending on your needs.
Here are the most common purchase paths to consider.
Buying From The Homeowner
A preforeclosure, or short sale, can occur when the homeowner still owns the property and knows theres a potential for foreclosure. Owners want to sell their home before they end up in foreclosure. This means that short sales arent technically foreclosure sales.
Short sales can also prove to be challenging. In a short sale, owners get permission from their lender to sell their residences for less than what they owe on their mortgage. If the owners owe $180,000 on their mortgage, they might still list the home at $160,000 even though such a sale leaves them $20,000 short of being able to pay off their entire mortgage loan.
In some short sales, the owners bank agrees to take this loss to get the home sold and the mortgage off their books.
The goal for the owners is to offer their home at a price thats low enough to ensure a quick sale before they fall behind on their monthly payments. Buying at this stage can be tough, though. Even if the sellers agree to your offer, their bank or lender might reject it if its too low.
Buying At An Auction
Buyers can purchase a home quickly at an auction. But there are hurdles, too. One example is that an auction typically requires buyers to have cash on hand.
Whats The Difference Between A Mortgage Foreclosure And A Short Sale
Buying a foreclosure shouldnt be confused with buying a short sale, another type of distressed property. A short sale is the sale of a home thats priced for less than the outstanding mortgage balance. It may also be referred to as a preforeclosure sale, especially if the seller is behind on their mortgage payments.
The lender must agree to a short sale and accept a sales price that may not cover the outstanding loan balance. In some cases, the seller may not have to repay the difference between the final sales price and whats still owed on the mortgage.
On the other hand, a mortgage foreclosure means the lender has repossessed a home and plans to sell it and recover the money it lent to the homeowner to buy it.
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Usda Loan After Foreclosure
The USDA guidelines state that you must wait at least 3 years after your foreclosure before you will be eligible for a USDA loan. You will also have to show improvements to your credit since the foreclosure took place.
Below are some additional requirements to get a USDA loan:
- 640 or higher credit score .
- No down payment required.
- The maximum DTI ratio allowed is 41%.
- A property must be located in a rural area in order to be eligible.
- USDA loans require you to pay a guarantee fee, which acts similarly to mortgage insurance.
An Inspection Can Miss Defects
Its not uncommon for issues to arise even after inspection. For example, electrical issues concealed within the walls may go unnoticed.
Some issues may have existed when the previous owners occupied the home but went unnoticed. This is common with elderly couples who sell their homes.
An elderly couple will often use utilities far less than a family of five.
Lets say the couple lived in the home with a fractured sewage pipe. The elderly couple may have been able to use the utilities without knowing.
If a young family moves in, theyll use the water far more often. This can put stress on a sewage system.
These problems may arise even in homes that havent been foreclosed on.
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Try To Avoid Foreclosure At All Cost
Of course, the best thing you should do is try to avoid foreclosure at any cost. Make all your payments in time to ensure your home is safe. If this isnt possible, try communicating with your lender. If you have a valid reason behind your debt, such as a divorce, illness, death of a family member, or losing your job, they will likely be willing to help you make a good repayment plan that will work for you.
If all else fails, you can always sell your house for cash to help you repay your debts while keeping your credit score intact. Finding a reliable direct buyer, such as Sparks Property Investors LLC, has many benefits, and one of them is the ability to sell your house before losing it to the bank. This way you dont even have to worry about getting a mortgage after foreclosure.
A direct buyer will buy your house, even if youre late on your mortgage payments. They will pay you in cash, which will help you close the sale in up to seven days. This leaves you with enough time to sort everything out and start a new life quickly. With a direct buyer, you can say Goodbye to the foreclosure and your loan.
How Does Foreclosure Work
Foreclosure is the process by which a lender takes possession of a home. It has several stages, which are important for a buyer to understand when considering a foreclosure.
- Payment default and notice of default: Payment default occurs after the homeowner has missed at least one payment. A notice of default is usually sent by the bank after 90 days of missed payments. Foreclosure referral timelines will vary based on the contract agreement as well as the policies of the lender and investor in the mortgage. A homeowner is often given time to work out a new payment plan with the bank.
- Notice of trustees sale: The lender must record the impending sale with the county and publish news of it in the local paper. This is one way of finding a foreclosure to buy, although in general an online search will be more effective.
- Trustees sale: The lender attempts to sell the property at public auction.
- Real estate-owned: If the property does not sell at auction, the bank will become the owner. They will then attempt to sell the property. For most people looking to buy a foreclosed home, this is the stage of foreclosure in which they will buy.
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How Do You Contact The Homeowner
You can talk to the homeowner before the auction and tell them you know they are in a tough situation. You can first either send a letter or postcard, or just knock on the door.
But Blomquist warns people that homeowners may not be so cordial, and you never know what situation you will encounter. But if the owner is willing, take a tour through the property. Make sure you take note in your head of how much repairs and renovation might take.
Having great tact and empathy can help. Remember that these homeowners are in distress.
Find A Mortgage Broker Or Real Estate Agent
If youre a first-time foreclosure buyer, youll want to use a real estate agent versed in REOs. You may think saving on fees and doing it yourself is the smart choice. But in the long run, an agent can save you time, money and frustration.
Many mortgage brokers and agents have years of experience under their belt and can steer you toward properties that meet your specifications. As always, when choosing a professional to work with, look for training, testimonials, reviews and other indicators of knowledge and experience.
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How To Speed Up The Process
You can reduce the waiting period for landing a new mortgage by showing that the foreclosure was the result of a significant financial hardship from which you have recovered.
So whats considered significant? I live to shop definitely doesnt count legitimate reasons include a layoff, business failure, divorce, or major health problems.
Be prepared to provide documentation of the hardship you claim, such as proof of paid medical bills.
Youll need to provide an explanation letter, which should be short and focus on recovery from the event, rather than excuses for it, says Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage.
Her sample sentence: After my business failed, I landed a W-2 job with an excellent company doing the same thing I did before, but with a guaranteed salary and full benefits package.
Just keep in mind that there is no one-size-fits-all when it comes to lenders dealing with this situation, says Rodriguez. Every lender has different requirements aside from basic guidelines set down by the FHA, VA, USDA, Fannie Mae, and Freddie Mac.
The FHA, for instance, is particular about what constitutes a significant financial hardship, says Fleming. A serious illness or the death of a wage earner may be acceptable, whereas divorce may not be.
How Do Foreclosures Work
When you purchased your home, you signed a mortgage contract that specified the amount of money you borrowed, as well as the interest rate and the details about your monthly payment.
However, simply living in your home does not mean that you legally own it. If you have a mortgage, the bank or lender technically owns the property until you make your final mortgage payment.
- A judicial foreclosure, meaning the lender needs to get a court order.
- A nonjudicial foreclosure, depending on the state where the property is located.
If you want to purchase another home after a foreclosure, you will likely be subject to a waiting period. Getting a mortgage after foreclosure can be challenging because of the impact on your credit, but with strong financial habits, you can get approved for another loan in the future.