How To Buy A House At Auction
In periods of limited supply, real estate investors try to find quality deals wherever they can. And, many look to property auctions as a potential opportunity. But, this brings up a common question people ask me about this approach: Ryan, do I need cash to buy a house at auction?
how to buy a house at auction
For banks, real estate auctions serve as a way to clear properties from the books. During the foreclosure process, banks seize homes from borrowers who default on their loans. With a mortgage, the associated home serves as collateral. That way, if the borrower stops repaying the loan (that is, defaults), the bank can seize the home and sell it to pay off the outstanding loan balance.
Due to this foreclosure process, banks often end up owning properties. But, holding these houses comes with significant costs, and it ties up capital that banks would prefer to A) lend and earn interest on, or B) use to meet required reserve ratios. Rather than continue holding these houses, banks choose to sell them. And, they frequently use auctions to make these sales.
Before bank-owned properties end up at a private auction, they go through a public one. Public auctions exist as an integral part of the foreclosure process. While I touched on it above, I need to cover this process in more detail here.
When borrowers stop making mortgage payments, banks send late notices. Each lender has a different policy, but they typically send these out until the 90-day late mark. At this point, lenders file a notice of default. This is a public declaration that a borrower has stopped making mortgage payments. Lenders typically publish them in a local newspaper while also filing them with the local courthouse.
At private auctions, the winning bidder also needs to pay a deposit. But, unlike public auctions, private ones require much smaller deposits, frequently in the $500 to $1,000 range. And, due to the two-week review period, investors then have more time to come up with the rest of the purchase funds.
How much you can save varies on your local market, the condition of the home, and other factors."}},"@type": "Question","name": "What kind of loan would you get to buy a house at auction?","acceptedAnswer": "@type": "Answer","text": "You generally can't use a loan to buy a house at auction. Most auctions require you to pay for the house in full, and in cash, after you buy it. However, some home auctions may allow for financing with "hard money" loans at high interest rates, designed for real estate investors.","@type": "Question","name": "Who does the closing if you buy a house at auction?","acceptedAnswer": "@type": "Answer","text": "The closing is usually done by an agent hired by the home's seller. For example, if you buy a HUD home at auction, the closing will be done by a HUD agent."]}]}] .cls-1fill:#999.cls-6fill:#6d6e71 Skip to contentThe BalanceSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.BudgetingBudgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps View All InvestingInvesting Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps View All MortgagesMortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates View All EconomicsEconomics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy View All BankingBanking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates View All Small BusinessSmall Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success View All Career PlanningCareer Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes View All MoreMore Credit Cards Insurance Taxes Credit Reports & Scores Loans Personal Stories About UsAbout Us The Balance Financial Review Board Diversity & Inclusion Pledge View All Follow Us
Budgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps Investing Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps Mortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates Economics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy Banking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates Small Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success Career Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes More Credit Cards Insurance Taxes Credit Reports & Scores Loans Financial Terms Dictionary About Us The Balance Financial Review Board Diversity & Inclusion Pledge Mortgages & Home Loans Homeowner GuideHow To Buy a House at AuctionWhat to know about a home auctionByLindsay VanSomerenUpdated on January 31, 2022Reviewed byLea D. UraduIn This ArticleView AllIn This ArticleWhy Homes Get Sold at AuctionHow Auctions WorkTypes of AuctionsPros and Cons of Buying a House at AuctionTips for Real Estate Auction SuccessFrequently Asked Questions (FAQs)How cheap can you buy a house at auction?What kind of loan would you get to buy a house at auction?Who does the closing if you buy a house at auction? Photo: Fabio Camandona / EyeEm / Getty Images
You generally can't use a loan to buy a house at auction. Most auctions require you to pay for the house in full, and in cash, after you buy it. However, some home auctions may allow for financing with "hard money" loans at high interest rates, designed for real estate investors.
The first option for financing an auctioned property is to borrow the cash from hard money lenders in your area. A hard money loan is a specific type of loan through which a borrower receives funds secured by a real estate property. These are typically issued by private investors or companies.
The third but more costly and risky option is to use personal loans to buy auction homes. One could use many types of personal loans here to provide the needed short-term funds. This can mostly work for those who have good credit, and it does not hurt to have a stable day-job either. The property prices should also be within the ceilings of personal loans.
You might have noticed that we did not list conventional bank financing as a viable method to purchase an auctioned property. This is simply because it is often very unrealistic that the investment property meets the eligibility criteria of most mortgage lenders. As a general rule of thumb, mortgage lenders will only lend against a property that is in an immediately habitable or lettable condition. It is also unlikely that applicants would be able to process their lending application by the time the auction closes.
Conventional bank loans will come into the picture a couple of months after you have purchased an auctioned house with hard, private or personal money. These sources of funding always come with costs, and you want to quickly refinance into conventional bank loans if you plan on holding onto the investment property. This can be done, for example, after the investment property has been renovated to meet mortgage eligibility criteria.
We hope these quick cash strategies will help you seal a great real estate deal at the next auction. If you feel you still need more information and resources before taking the leap, Mashvisor covers auction properties in our real estate investment blog.
Real estate auctions have become increasingly popular with people buying a house for investment. This is because auction properties are usually priced below market value and make for a great bargain in a housing market with rising property prices.
There are two main types of property offered for sale at an auction: houses repossessed by governments due to unpaid property taxes and those repossessed by banks through foreclosure (bank-owned homes). At other times, the property might need to be auctioned off because:
Auction websites such as Auction.com, MLS, and RealtyTrac are also great sources of information on real estate auctions. You can find Auction.com listings in the Mashvisor Property Marketplace right now. You could also consult real estate brokers and agents to get updates about auctions in your target housing market.
Once you have identified some houses you are interested in, organize viewings with the auctioneer. Preferably, get an architect, surveyor or builder to accompany you for the viewing. Properties sold at auction usually require a lot of repairs. Get an estimate on the cost of repairs and decide whether buying a house at auction is a feasible investment or not. If possible, view the property multiple times since the conditions can change any time. 041b061a72