Financing Foreclosures - Cash or Loan?

When foreclosed homes are auctioned off does the buyer (winning bidder) have to pay cash or can they finance? If so, can they finance with an FHA, VA or conventional loan? Thanks in advance for your help! Andrea

2 Answers

Buying a foreclosed home is not really any different than purchasing from an individual, with some exceptions. Unless specifically stated in MLS, the asset enitity website, or or other marketing advertising a home can be "generally" financed with any loan package.

When purchasing a foreclosure it is best to purchase via either cash or conventional financing. In-house bank loans are like conventional loans and are usually used by investors but they are shorter in term and higher in the interest rate.

With the repair requirement guidelines of FHA, and especially VA, itis best to avoid these financing types. Normally an asset entity is selling the home As-Is and do not want to do any repairs that might be required for loan approval with FHA or VA. One exception is the FHA 230k loan which is a rehab styled loan. The repair cost is financed as part of the purchase price and the repairs are performed "after" the transaction is closed. The finance amount is then based on the "repaired" fair market value. 

If your question is about the foreclosed auctioned homes done by your local public trustee the rules are set differently by each trustee. It's very typical for money to be due on the day of auction or with a few days. If this is the case then typical financing (conventional, VA or FHA) is difficult because of standard underwriting items needed to complete the purchase like appraisals, title searchs and inspections take time.

You would need to research through the trustee auction to make sure you understand the terms of the auction. There are also auctions performed by a single or group of banks that sell foreclosed homes they purchased during public trustee sales (usually the homes they forclosed) that typically work like a standard transaction. Again every auction sets its own terms for purchase and you'll just need to make sure your lender, if you choose to use one, understands the length of time required by the auction.

Auctions can be a great way to purchase homes at a discount and I encourage you to check if you're in the home buying market. Plus they are fun to attend even if you don't buy. Good Luck!