Financing Question for a Foreclosure

7 Replies

Hey all,

I'm pretty new to BP and to REI in general. I purchased the house I live in a year ago and now see the light of what real estate can do! So I'm reading and researching a lot, I'll be taking a class at community college, and just trying to get educated. I'm in the Portland, Oregon area and my plan, like many, is to buy and hold for eventual financial independence and retirement.

I'm writing today because I have one specific question. I was speaking with a broker yesterday about a foreclosure house she will be showing me on Friday. When I was asking a few questions, one of the things that came up were the forms of purchase the owner will and won't accept. She said that he would accept cash or a rehab loan, but no VA loans or conventional loans. I didn't ask because I didn't want to sound stupid, but can anyone explain why this would be? Specifically, why wouldn't a conventional loan be acceptable? Doesn't he get payment for the house either way? Hopefully this isn't too dumb of a question, but I'm still learning and this is probably as good as any place to ask.

Thank you in advance!

Corey

You can buy REo's with conventional, or even FHA, If the property is in "financeable condition". Most REO's ARE in financeable condition, but a larger percentage of them, as opposed to owner occupied residences, are Not in financeable condition due to lack of maintenance, vandalism, stripping by the former owner, etc. But, that will be decided, and become evident, on a case by case basis.

All REO's are different. This statement "She said that he would accept" leads me to think that the seller is not a normal bank. 

Could this be a private financier that had to foreclose on his client? Most likely the home is not financeable and that's why "he" will not accept anything other than cash or rehab loan. 

Look the property up on portlandmaps.com. Click on the assessor tab. That page will show you the owner of record (which may or may not be right given the time frame of the foreclosure) and their mailing address. 

If it is a private fancier you may be able to make an offer with seller carry (expect expensive terms though). 

Never be afraid to sound stupid by asking questions related to your money or effort.  

Ask your questions now while you are learning.  You'll really feel unprepared if you don't understand something in a year.  

Also, this is a good way to cut through a line of baloney someone may be serving you.  If they can't explain why something is so, you need to decide if they are worth relying on.  

The agent should prefer to get an up front appraisal of your readiness rather than having you waffle at the last minute if you don't have the confidence to close.  

As Wayne said, the property is probably in crappy shape, so the buyer will have to spend money before a bank is willing to finance it.  

Thank you all very much for the quick responses.  All great advice, I really appreciate you guys taking the time.  I did go ahead and ask the real estate broker a couple more questions based on some of your advice, so we'll see what I find out!  I'll let you know if anything interesting comes of it.

Hi @Corey Petersen, 

Great decision, and glad you are reaching out. I wish I had been more connected like you are when I was starting out. 

Foreclosure properties are complex from the very get-go, because, when somebody says "foreclosure" it could be a Pre-Foreclosure, or an after-Foreclosure (which means it should be called an REO), or a true foreclosure - which means it should be called an Auction Sale. So, getting the meaning straight right from the beginning is very important.

If it's a Pre-Foreclosure, and you if find out it's a "Short Sale" then you have to ask; "Is the price approved by the lender?"  Because a "Short Sale" means that they intend to sell it for less than is owed, but more times than not, the lender has not agreed to the price.  And there is no sale, until the lender agrees. 

Come in with this knowledge, and find out why the real estate broker said no VA, and no Conventional. I work a lot of Short Sale negotiations, and "conventional" in my world has a more specific meaning than it does in a lot of other people's world.

Have a great day!

Grace  Widdicombe

President of Northwest REIA - Portland, OR

If I had to guess they think (know) that the house has issues that will become a problem for most conventional financing.

You might be able to get a FHA 203k, or HomeStyle Renovation (both "conventional") that will address any issues and be able to purchase at just about market interest rates...and finance the repairs into one loan.

Thank you both for the education and advice, I really appreciate it.  Very Helpful.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.