Looking at a foreclosed house but how to finance?

8 Replies

Hi all,

We have been looking and taking the leap into buying our first investment sfh. We came across a couple foreclosed houses that look good in terms of numbers (assuming we get the number we think we can) and general property maintenance (still have to confirm the interior).

We have done a lot of research and were thinking about taking the jump.

Our question is mostly how to finance the deal? Most people do all cash for foreclosures (to move quickly) but wanted to know if there is any other creative ways. 50% cash and 50% finance maybe?

Any guidance would be helpful

Hi Manpreet, congrats on taking the leap!  Convention lending could be an option but if you are looking for a fast/cash close, private/hard money is a good option, depending on your RE strategy. 

Most conventional banks won't lend on foreclosures (none that I know of). In my experience, you have to use all cash or hard money lender (same as cash). Don't be afraid of hard money lenders, there are some good ones. Yes, you will pay a higher int rate for 6-12 mos, but then refi into conventional. They are a great resource. I use Sherman Bridge but Lima One, etc. are all reputable.

@Manpreet C. Are you intending to fix and flip or buy and hold? You absolutely can get conventional financing for an REO if it only needs a light rehab or nothing. If the property needs significant rehab, it could qualify for an FHA 203k loan but typically hard money is your best option.

However, if you want to move fast, hard money is the way to go. I would look at a 50% down, 50% financed offer as the next best thing to 100% cash in terms of being able to close. Most lenders out there these days are trying to maximize their profits so don't expect as much of a discount. The 100% cash offers are more attractive because they are considered to have a higher chance of closing than financed offers.

Don't look to the lender that owns the REO to provide financing; try private money, conventional, and reputable hard money for your financing.

@Bret Faszholz Any lender will lend on a foreclosure....as long as it meets the standard physical conditions for conventional or fha.  The majority of foreclosures are in financeable condition just like any other house.

@Manpreet C. For my last REO I purchased, and it wasn't in livable condition (missing kitchen, water wouldn't run through the pipes, etc), I used a local bank that provided the purchase + rehab funds.

 20% down, no points, 5% interest, full doc (W2's, tax returns).  Three weeks to close.

They kept the loan in-house and had a lot of flexibility on the property condition.

- Tom