Should I bid on this auction home? need help ASAP!

20 Replies

There is a foreclosure  home that was listed on zillow a few days ago and i viewed it today with my realtor.  The home is being sold via an online auction that ends tomorrow 3/9/15 at 10pm. I am willing to go up to 50k to purchase the home (its an older home will need repairs) I have a 736 credit score, and 20% down for the home.  I have to pay the earnest deposit and the website fees in 48 hours if i win the auction, but I will have to pay the full amount within 30 days, if not it is an extra $100 a day to extend it past that ( to my knowledge).  

My questions is will I get approved for a mortgage within the 30 days? It's Sunday so all the banks were closed, but I used lending tree and at first i had no offers but when i lowered my down payment to 10% i did get an offer from quicken loans for a 15 year fixed mortgage with a 5.058% APR. Is this a decent rate? Im guessing it is hard to get a mortgage when you are borrowing less than 50k? How long does this process typically take? I would hate to lose my earnest money deposit because something went wrong with getting the loan to go through in time..

Also If i get the house I will live in one bedroom and rent out the extra rooms, I don't know if that affects anything.

Thanks for any advice!

@Tyler Shuplinkov  ummmm..... bad idea.

These auctions are for cash buyers. If you need a mortgage to purchase the property you're not able to purchase a home in this manner. If a house is legally uninhabitable you can't get a mortgage on it. If it lacks basic appliances you can't get a mortgage on it. While I hesitate to use the word "never" you'd be unlikely in the extreme to make it through the mortgage process inside of 30 days in any event.

IF real estate auctions are something you want to pursue AND you don't have cash of your own: you'd need a hard money lender for the transnational funding. You'd also be advised to seek out a mentor who has done this before and shadow them through the process. There are mistakes others have made that you just can't afford to make yourself.

Real estate has many paths to financial success. But not all paths are open to all people at all times.

Originally posted by @Jeff G. :

@Tyler Shuplinkov ummmm..... bad idea.

These auctions are for cash buyers. If you need a mortgage to purchase the property you're not able to purchase a home in this manner. If a house is legally uninhabitable you can't get a mortgage on it. If it lacks basic appliances you can't get a mortgage on it. While I hesitate to use the word "never" you'd be unlikely in the extreme to make it through the mortgage process inside of 30 days in any event.

IF real estate auctions are something you want to pursue AND you don't have cash of your own: you'd need a hard money lender for the transnational funding. You'd also be advised to seek out a mentor who has done this before and shadow them through the process. There are mistakes others have made that you just can't afford to make yourself.

Real estate has many paths to financial success. But not all paths are open to all people at all times.

 Hey, good advice  I am very new to this process and appreciate the information.  When I viewed the home it does have the basic appliances, however there is no time to do an inspection and it is sold "as-is" but visually it appears to be habitable. Normally I would not want to purchase a home under these conditions but this one I liked and if I can get it at a good price(under 45k) , would it be worth it to pay the $100 a day fee to extend it until the mortgage loan went through?  I plan on calling lenders first thing in the morning,  if I tell them that I will need it to close within 30days would they make it a priority?

I did get pre approved for a personal loan for 35k with a 12.8% interest rate if that's what you mean by hard money lender. 

@Tyler Shuplinkov  I'm not going to presume to tell you what you should do. I will say I would not personally bid on a home like that unless I had cashiers checks in hand to pay for it with.

Also, please consider what kind of problems would come up if you could not get a mortgage for some reason. Or, if you could get a mortgage but it took substantially longer to work through than is normal. Both are realistic possibilities.

I'd hate to see you get burned by being hasty. As a wise man once said, "It's better to miss out on a good deal than to buy a bad one."

Go hard money lending with 20% down you will be able to get a loan with 12% interest.. I hope this is a short term investment.

Hard money do not care if the home is in bad shape. They will give you the money really quick..  Please do not listen the last comment. You can do it , just put work on it..

Originally posted by @Pat Fran :

Hard money do not care if the home is in bad shape. They will give you the money really quick..  Please do not listen the last comment. You can do it , just put work on it..

 If I got the hard money loan would I be able to refinance it to a 15 year fixed mortgage a few months later?  I live in a college town and plan on living in one bedroom and renting out the other 3 for $350 a piece so it can be a good investment for me I believe.  If the lenders can not guarantee they can close on the deal in 30 days, 45 max then I will not bid.

When you refinance you lose money. Usually hard money charges 3 points to generate the loan.

I would only use hard money for a short term investment.

Go to private lending sites and try to get a private money loan. I saw a girl here on this site that does it in Michigan ( not sure) and she owns lots of rentals.

she was on the podcast talking about the sites she goes.. here on this site.. go check it out..

@Tyler Shuplinkov  

I echo what @Jeff G.  said about this. I don't want to tell you what to do or what not to do either but I would advise against doing this. Things can and do end up taking longer with financing a property. You might be able to get hard money and you might have had approval online for a loan, but if you were to use hard money to get the house bought, which is a fine idea in and of itself, you really need to make sure you know beyond a shadow of a doubt that you can close a loan on it with a bank to pay back the hard money without running into major issues financially.

I think you would need to post mote information about the numbers of the deal to get a better response to exactly what type a deal it would be. However, I think you also have  a lot of questions yet to answer about getting involved in this process in investing and that can be dangerous to jump into. I bought places starting out being prepared but not knowing near what I do today and I would not attempt what you are talking about in my own business. It isn't the best move to make in my opinion. On the places I bought, I was using lease options and contract for deed so if I wasn't able to purchase I wasn't stuck in a bad position.

When you rush things you aren't prepared for things don't tend to work out according to theory. Again not telling you what to do, just advising against getting started this way - on the other hand if you have done your homework and know you can't lose on the deal and its a grand slam then anyone would be a fool not to find a way to get it done - just a lot to watch out for..........

 @Jeff McCaskey


Thank you for very thoughtful response.  As to you saying to post more info on the numbers... The home was sold in 2007 by my realtor for 133,000 and homes in the neighborhood in good condition sale for 100,000-145,000.  This home needs cosmetic work, my estimate would be 10-20k put in and it could easily resale for 100k (my estimate includes putting a central hvac unit since currently has window units) I currently live in a very similar large older home that has college students as tenants, the rent is $425 a piece and it usually only takes a couple months for the landlord to find new tenants  who usually stay for a few semesters.  The home I want to buy is right down the road from the home I am currently living which are both very close to campus.  I think a very realistic estimate for what I could rent would be $350 per room of this house I want to buy.  So with all three rooms upstairs occupied (and me living in the fourth downstairs bedroom) that would be $1050 a month which I could use the entirety of to pay off the loan faster.  Also I have 23k in savings but I would not want to put more than 10k down on the home encase I need some extra money for repairs. Also the one online lender I got pre-approved for will only do it if I only put 10% or less down. My max bid I am willing to go up to is 50k on this home.  The Plan is to live in it and rent out the three rooms upstairs, while making upgrades to the home, then reselling in a few years when I graduate.  Im no pro but if I can get this home for under 50k then it will most likely be a grand slam am i wrong?

The auction site says they prefer a wire transfer for the full payment.  I agree with what you say about rushing this and I hate that I have to resort to this, but unfortunately this home is being auctioned this way and it was only listed for a week and the bidding ends tomorrow which is why I am on here looking for all the input I can get.

Are you able to determine if there are big issues in your own? Sewer, foundation, roof? You'll likely have no inspection contingency after you send your earnest money deposit...

@Tyler Shuplinkov  If you have your Lender lined up, does it work like ebay if you put in your bid of $50k (ie. will only be recorded as one increment above the previous high Bidder)? (I like that about ebay).

Either way, make sure that if you are OUTBID at your pre-determined highest Offer amount - WALK AWAY! All the best...

It will be much more difficult to use a hard money lender since you plan on living in the home. Dodd-Frankenstein has effectively protected people out of this option as most hard money lenders will no longer lend to owner occupants.

Originally posted by @Pat Fran :

Hard money do not care if the home is in bad shape. They will give you the money really quick..  Please do not listen the last comment. You can do it , just put work on it..

But hard money lenders usually do not want the borrower to live there ...

I assume this is an REO, not the actual foreclosure action auction. Financing is allowed, but you really don't know if YOU will be approved. FYI, Lending Tree is a joke, and do Not base any decisions on something from there. They're geared more toward credit risks clients. All preapprovals are contingent on a bunch of criteria that you have not submitted yet. HML is out, if you're going to live there. 30 days for loan approvals is pretty typical.

Well I was outbid and the home sold for a little over 50k.  But I learned alot about this process of home buying.  For those wondering yes this is exactly like bidding on ebay and you can make auto bids.  Also the smaller banks I talked to said they would be able to close within 30 days no problem.  

Hi Tyler,

I am fairly new and still learning. I am on my 4th deal. 

I suggest that you use a private money on the next auction you bid on if you don't have your own money for the deal. On my first deal thats exactly what I did. My private money leader was ok with me bidding on a house up to $165K. The bidding went past that and I got the house at $172K. The house was only 10 years old and about 2800 sq. ft. The water had been left on in the house during winter and the water pipes broke flooding the house. The sheetrock was literally falling down from the ceilings in the basement and mold was growing. I am a contractor, Carpenter, project manager so i have the knowledge and know the right people to handle a job like this. I got the house finished and on the market quickly. It turned out that from purchase to closing was exactly 90 days. The house was on the market only 7 days with multiple bids.

I did most of the work and paid myself $20K and had about $32K in other subs work. The house sold for $295K resulting with me splitting $52K profit with my private money lender.

So next time if you think you have a great deal try show everyone you no that has money and could possible do a deal with you the numbers and possible ROI.

Good luck on your next deal. Just keep motivated and don't ever say to yourself that you cant get it dun, but instead how can I get it dun?

Ken

@Tyler Shuplinkov If you are now wondering "if only I had put in one more bid", then a BETTER question is: why did I pre-decide on just $50k in the first place(?) and you will have your answer. 

If a bidding frenzy starts, remember that there is no new information being given to you that you were unaware of in the first place (other than at least one person is prepared to pay more than you), so there is therefore NO excuse for amending your decision at the last minute.

Congrats on sticking to your PRE-DETERMINED limit!...

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