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Foreclosure for saleThis is the next post in my series discussing what buyers need to know about buying distressed and foreclosed properties. My last two posts discussed what a buyer needs to know when making a purchase from a bank, Fannie Mae, Freddie Mac, or HUD. In this post, I will discuss the financing options when purchasing a distressed home.

Dayton area investors have options when it comes to buying a distressed property

The majority of Dayton’s distressed properties are purchased in cash. Most buyers are going to prefer cash, because financing a distressed property or a foreclosure requires the buyer to jump through a number of hoops that will deter a fast sale. A seller is going to prefer a cash transaction whenever possible. If that is not an option for a buyer, they may have options.

The first option a buyer may consider is alternative financing. Many investors looking for rehab projects utilize hard money loans. A hard money loan is a less rigorous process than a typical rehabilitation loan from a bank. In a hard money loan, a property, the buyer will need to find properties that fit specific criteria, including a specific cap on how much repairs will cost, and a specific valuation that the property must meet after repairs are made (ARV or after repair value). The property will still need to pass an appraisal, however, a hard money loan will typically be a faster process than a more traditional loan.

If a buyer wishes to utilize a rehabilitation loan, they should find a lender who has a great deal of experience in this type of loan product, who can explain to them the types of properties they may make an offer on. Questions a buyer should ask their lender ahead of time include, if a property is required to have working utilities, and if there are any limitations on the type of property the buyer may bid on. For most rehab loans, the buyer will be required to obtain the estimates from at least two contractors that the bank approves. The property will also be required to pass a bank appraisal. The contractor estimates will have to go through the loan underwriting process. The entire rehab loan process is likely to take 60+ days, and it is important for both buyer and seller to understand and be patient with the process.

If a property requires more cosmetic repairs, and a buyer has some cash but still needs to utilize leverage, then a conventional loan can also be an acceptable option. For a conventional loan, the property will still need to be essentially habitable and insurable; utilities will need to be in working order, and the roof must not have any significant active leaks, etc. However, the property only needs to appraise for the current value that the buyer has offered to pay, without the buyer having to worry about the property appraising for their projected ARV, or the bank requiring contractor estimates. In this option the buyer would be responsible for paying for repairs through cash or other credit means. But since it is a traditional lending route, closing can take place within a standard 30-45 days.

An experienced real estate agent will be familiar with the issues which can arise when buying & financing a Dayton area foreclosure

If you are interested in purchasing foreclosures or distressed properties, but do not have enough cash to do so, there are options as I have explained above. It is important to understand, however, that issues can arise after signing the contract to purchase such a property or multi-family unit. These issues can include the property needing more repair work than originally though and other matters which can impact the ARV. By hiring a realtor who is experienced in dealing with such units, you may help to ensure that you are making informed decisions.

I am a Dayton real estate agent with experience in handling foreclosures & distressed properties. If you need assistance then contact me today. I also service the areas of Beavercreek, Centerville, Cincinnati, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.

Note: Nothing in this article, or on this website should be construed as investment or financial advice. The opinions shared on this website are the personal, and not professional, opinion of the author and are not associated with Keller Williams Advisors. Any investment decisions should be made after consulting with a certified financial/investment professional.