Ok, we probably don’t have to tell you that investing in real estate is a proven, effective method for diversifying an investment portfolio, while saving for retirement or any other financial goals you’ve set. Nice…
And of course, when you’re investing in real estate, being able to buy properties at a reasonably discounted or low price is the main key in gaining high returns and solid cash flow. Also nice…
But!
Did you know that one of the most affordable types of properties on the market are foreclosure properties? Facts.
So, if you’d like to know how to buy foreclosed homes with no money, this handy-dandy guide should give you all the important details.
Let’s go…
What Is a Foreclosed Home?
Ok, before we share how to buy foreclosed homes with no money, you should first learn what foreclosure homes are exactly and how they enter the foreclosure process in the first place.
Class is in session!
I’m sure you know that unless someone buys a home solely with cash, they’ll need to finance the transaction with the help of a lender, which is usually a big bank…
In exchange for the cash needed to buy the property, the borrower agrees to make monthly payments over a lengthy period of time until the entire loan has been repaid.
If the buyer misses making payments, and the lender/bank has no recourse, it can foreclose on the property — that means the bank will offer the property for sale, usually at an auction where buyers can bid on the property.
When foreclosure homes aren’t sold to anyone at auctions, the lender can take ownership, and the property then becomes a real estate owned (REO) property.
So, as you can see, if you’re thinking about how to buy foreclosed homes with no money, it depends on when you choose to buy during the foreclosure process.
What Is a Loan Assumption?
While you’re learning how to buy foreclosed homes with no money, you should also know what a loan assumption is.
This process is one avenue you can explore when you’re figuring out how to buy foreclosed homes with no money. A loan assumption happens when the buyer takes over the seller’s mortgage.
See, to avoid foreclosure, some sellers will transfer ownership to the buyer. Since a foreclosure appears on a person’s credit history, this is a great way for a homeowner to avoid damaging their credit history.
Keep in mind, though, that a loan assumption needs to first be approved by the lender and will only work with certain types of mortgages.
5 Ways to Buy Foreclosed Homes with No Money
Ok, now we’re at the meaty part …
There are 5 methods you can use to buy foreclosed homes with no money. We‘re talking everything from using a mortgage to purchase the property to taking on a loan assumption.
#1. You can bid on foreclosures at auctions. Then, you don’t even have to talk to sellers or lenders. Yay. But, most auctions require cash payments, so you’ve gotta have significant funds ready. When buying at an auction, you scoop up the property as-is… no appraisal or inspection. That’s a risk, but could still be worth it. Just do your due diligence ahead of time.
#2. When you use a mortgage to buy foreclosure properties, the only money you’ll spend involves the down payment, which can be extremely low. If you’re buying foreclosure homes with an FHA or VA loan, you may be able to complete the transaction without a down payment.
#3. When you’re trying to figure out how to buy foreclosed homes with no money, you could also avoid spending your own money by borrowing from friends or family members. Making this purchase with private money gives you more flexibility than you have with a mortgage.
#4. You could also choose to pursue partnering, which involves pairing up with other investors to buy foreclosure homes. If you’re going to flip the home or do renovations, consider creating an agreement that involves you handling all the work, while the other investors provide the capital.
#5. The fourth option for how to buy foreclosed homes with no money is to take part in a loan assumption, which allows you to assume the seller’s mortgage without spending any money.
How to Buy Foreclosed Homes with No Money
Regardless of the method you use to acquire the property, you can make your purchase by following some simple steps…
First, you’ll need to find a distressed home — gather info about these properties from your local county clerk’s office or through public records. Plus, look on these sites, too: HUD, Fannie Mae, Freddie Mac. And, you could also check with foreclosure agents in the area.
Remember, you could buy these properties at an auction.
But, if the property is already listed as an REO, consider having an REO agent help out. Because either you or your agent will need to contact the mortgage lender that’s handling the foreclosure process to make your offer. Hopefully, the bank will accept.
If the bank says all systems go, then all that’s left is to start the closing process and send the documentation to the title insurance company, which your closing attorney or closing agent can handle.
Now, if you’re opting for a loan assumption, ask the bank if that’s allowed. The bank will ask you a few questions before telling you if it’s feasible. If the lender doesn’t grant you the assumption, you might need to explore some of the other methods we shared above about how to buy foreclosed homes with no money.
If that bank is cool with a loan assumption, the paperwork is prepared, which involves a loan assumption agreement that’s signed by every party. This documentation can then be submitted to the mortgage lender, which is when the final approval is given.
Benefits & Disadvantages of Buying Foreclosed Homes with No Money
The main benefits of buying foreclosed homes with no money are:
- You may benefit from a lower price if you don’t use any of your money
- A loan assumption is possible
- You can gain a high return on investment
- You’ll have bargaining power
A few issues associated with buying foreclosed homes with no money are:
- It’s difficult to estimate closing timeline
- The home may be in poor condition
- Options are somewhat limited
Main Takeaways About How to Buy Foreclosed Homes with No Money in 2024
Now that you know exactly how to buy foreclosed homes with no money, you can begin this process by searching for the right foreclosure.
Foreclosure properties can be beneficial for your REI business, which is why you should consider all your options when you’re looking for ways to purchase one of these properties.
Knowing how to buy foreclosure homes with no money also allows you to avoid some of the more common pitfalls that investors make when using their own capital.
Now get out there and find some foreclosures!
