Investing in Real Estate Foreclosure Market with Little or No Money Down
As the pandemic starts to wind down, it bears to reason that at some point the government forbearance programs and foreclosure moratorium will come to an end. At the end of 2020, about 2.7 million loans were in the forbearance program, which means those who are savvy investors might be eyeing the chance to buy foreclosure houses below market value right about now. It is not outside the realm of reason to anticipate an influx of foreclosed homes soon, and many of those will likely be sold below market value as banks work quickly to unload essentially useless properties.
Whether you are a first-time homeowner or a savvy investor who wants to snap up more properties, this is clearly the time to start searching for foreclosure homes. There is one thing that stops a lot of people, however, the fact that they don’t have liquid assets or cash to buy a home. However, believe it or not, there are ways to buy homes with no money down. If you take advantage of several programs and are willing to pay a higher rate of interest, you can get away with getting home for no money down. If your head just snapped back up, then it’s time to keep reading to learn how.
Check out FHA Foreclosed Properties
The very best place to start is by looking at FHA foreclosed properties. An FHA property is one that was originally purchased via a loan that was ensured by Federal Housing Administration. The original mortgage owner was able to secure their loan because it was backed by the FHA. This special program is open to first-time home buyers and is designed to help them get their footing in the housing market. Therefore, applicants that may have been denied a traditional loan are able to utilize it to get a house with no money down or very low down payment.
However, even FHA mortgage owners can default. The difference is that their monthly payments include a PIM, which is a special insurance agreement placed against the loan. Therefore, when they default the FHA pays the lender any money that was lost on the loan. This is great for the bank since they are able to recoup their losses, and this is great for you as a buyer because the bank is willing to auction or sell the property for as much as 60% less than its value. Many homes are sold below market value that was former FHA loans, and because the FHA has strict terms when it comes to home purchases, most are in fairly good shape.
When you buy a foreclosure house below market value you have the unique opportunity to either put no money down or a very minimal amount which can help you enter the market without a large amount of liquid cash. For instance, when you start to find foreclosure homes you may see a house that is valued at $100K, for sale for $40k because it is an FHA foreclosure. 10% of 4K is significantly different than 4% of $100K, and depending on the shape of the home you may be eligible for your own FHA loan or VA loan which will allow you to buy a foreclosure house below market value and possibly even buy a home with no money down.
Can You Buy Home with No Money Down with an FHA Loan?
Typically FHA loans require you to place at least 3.5% down, but there are situations where you may be able to purchase a home with no money down. However, as mentioned earlier, FHA loans have very strict guidelines and the home inspection will be intense. If the home does not pass the inspection then you will not be able to complete buying a house in foreclosure while utilizing the FHA loan.
Find Foreclosure Homes with Uninsured (UI) Status
One of the best ways to find foreclosure homes that you can purchase with no money down is by searching for an uninsured status foreclosure. This status reveals that a home will not meet FHA standards and requires extensive repair. If you are willing to put the time and money into the repairs then you can usually purchase the home without placing any money down. You need to be aware however that sometimes UI homes can have unforeseen challenges, especially if you are unable to make the repairs on your own.
Search for Foreclosures
Before worrying about how to buy homes with no money down, you need to find foreclosure homes to even consider. There are several ways that you can find foreclosure homes in your region. Working with a real estate agent that has knowledge of the foreclosure market can be a great way to see foreclosures before an auction or get in quick on a short sale. Here is an overview of how to find foreclosures homes that may allow you to buy for no money down or at the very least that are sold below market value.
- Talk to a real estate agent
- Check online directories
- Review Foreclosureshomefinder.com
- HUD foreclosure lists
- Fannie Mae HomePath
- Freddie Mac HomeSteps
Once again, it is important to reiterate that there are risks associated with buying a foreclosure even if you are able to purchase with no money down. It is always best to balance risk with the potential for profit before obtaining a mortgage on a foreclosed home.
