Finding Ways to Fund Your Purchase of a Foreclosure Property
Just because you don't have $200,000 sitting around in your savings account doesn't mean that you can't take advantage of the foreclosure market. Here are three ways of getting the seed money that you need in order to profit.
1. Leveraging (partnership). A partnership can be a great way to share the risks and rewards by pooling you money with other people. If you have $50,000 and can find three other investors with $50,000 each, you'll be able to invest $200,000 in a property. Not having to pay a bank or mortgage company's interest makes is it easier and more lucrative all around. Plus, when you show up at an auction, you must have a cashiers check. Since you organized the deal and did the research you can rightfully get a larger share of the profit. The investors only needed to put up their money, but they'll be happy because they made a profit, too. MAKE SURE you use an agreement that is rock solid, you should have a lawyer draft one for you before attempting this.
Remember, people won't throw their money in with just anybody. You need to gain their trust by having a good credit record and some trustworthy references who will attest to your ethical character. Your partners need to know that they are doing business with someone they can trust. By partnering with you they are trusting you to keep their investment safe and turn a profit. Additionally, you probably should not attempt this method until you have a few (or more) successful buys under your belt. You're not going to find many partners to throw in money, if you have no experience. A GREAT way to get experience is to take advantage of the many reputable free online seminars in foreclosure buying. (Follow this link, then scroll to the bottom of their page.)
2. Equity line of credit. If you're a homeowner right now and have good credit you may be able to qualify for an equity line of credit with which you can finance the purchase of your foreclosure property. This is essentially a second mortgage based on the equity you have in your current home. Unlike a second mortgage, though, the bank will give you a checkbook and will not insist on knowing what you are spending the money on. Interest is charged only on the balance that you've used. You can have this ready and waiting for the right property to come along, one that passes all of your tests. BE CAREFUL though. Depending on where you live, the downturn in your local market could affect YOUR home value. You do not want to end up owing more on your home that it is worth!
3. Pledged Account Programs. In this type of loan, either you or a willing friend or relatives pledges money they have on deposit to a lender for collateral on a no down payment loan. The pledged funds and interest earned still belong to the person who pledged them. But, the pledged funds secure the loan and lower the lender's risk. This is usually a very short-term arrangement, as the people pledging the money won't want their money tied up forever. If you are unable to sell the property quickly, you will need to refinance at a fixed rate. You will then be able to rent the property and your tenants will be making the mortgage payment until you can sell.
Beyond these three options, there are other creative ways to fund your purchase of foreclosure property. You can check with your bank or credit union to find out what options they offer. Or, better yet, visit some of the excellent online forums, make contacts, and discuss options with seasoned buyers who have already "been there".