Buying Foreclosure Home with No Money Down
While purchasing a foreclosure home – or any property – with no
money down is a challenge, it’s not impossible to do. The simplest
way to buy a foreclosure property with no money down is to have
proof that you’re a good, safe investment for a lender. Mortgage
lenders are obviously taking a gamble on borrowers – they gain
nothing from a borrower who doesn’t repay their loan. Even when a
home is foreclosed, the bank earns nothing – all it gains is a
property to sell, and most likely at a loss. Because of this,
mortgage lenders want to loan money to someone they have reason to
believe will pay back the loan – which is a borrower with a good
credit score and a healthy real estate portfolio.
Not quite there yet? Continue building good credit and working on
your portfolio. This may take years, but don’t worry – there are a
few other ways to buy a foreclosure home with no money down. Federal
Housing Administrations (FHA) foreclosure homes are different from
other types of foreclosure properties, as there are methods for
purchasing these foreclosure homes with little to no money down. In
order to take advantage of this, you need to understand how the FHA
categorizes the homes they’re selling.
IN – short for “insured” – indicates the FHA foreclosure home meets
minimum property standards (MPS), which means IN homes are in
livable condition. IE – short for “insured with escrow” – indicates
the FHA foreclosure home requires some repairs to meet MPS. While
both IN and IE homes aren’t available with no money down, with
creative financing you can get around this.
First, bid on the foreclosure home using a 203b mortgage. Next,
attend the foreclosure home inspection, and make it clear to the
inspector that you’re interested in finding deficiencies in the
home. These deficiencies need to relate to MPS – pointing out
peeling paint won’t be enough. There must be some structural,
heating, or plumbing repairs needed.
The home inspector will send their report to your mortgage lender,
and this report will include the financial requirements necessary to
repair the foreclosure home to meet MPS. (The funds necessary for
repairs need to be less than $5,500.) Once the home inspection
report has been turned in, noting necessary repairs, you can also
increase the amount of money you receive by applying for a different
FHA loan, a 203k mortgage. This can raise the total funds you
receive to 110% of the foreclosure home’s after-repairs value.
At closing, you’ll need to finance the repairs yourself, and you’ll
have 90 days to complete all of the necessary repairs. After your
lender inspects the completed repairs, you’ll give your repair
invoices to your lender, who should cover the expenses. This money,
along with any funds left after the invoices are repaid, should
cover the original down payment you made on your foreclosure home.
A third type of FHA foreclosure home is UI. Short for “uninsured,”
UI indicates the FHA foreclosure home requires repairs to meet MPS,
which means UI homes are not in livable condition. UI homes are
available with low money down, and creative financing can get you a
UI home for no money down.
First, bid on the foreclosure home with a 203k mortgage, instead of
a 203b mortgage. You can bid on the home with a repair mortgage
right away, as the home has already been appraised as needing
repairs to bring it up to MPS. Have the home inspected, and be sure
to attend the inspection, and tell the inspector that you’re
interested in finding deficiencies in the home. The home inspector
will send their report to your mortgage lender, and this report will
include the financial requirements necessary to repair the
foreclosure home to meet MPS.
At closing, you’ll need to finance the repairs yourself, and you’ll
have 90 days to complete all of the necessary repairs. After your
lender inspects the completed repairs, you’ll give your repair
invoices to your lender, who should cover the expenses. This money,
along with any funds left after the invoices are repaid, should
cover the original down payment you made on your foreclosure home.
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