Are auction homes cash only? Or do auction companies take guaranteed funding from other sources? This post addresses this particular question.
Getting the funds needed to buy a home at auction is not necessarily easy. And the type of funds that an auction requires depends on several factors.
Cash Only Depends on the Type of Auction
A public foreclosure auction may have different rules for providing funds than a sheriff sale. Also, how much time you have to pay may also be different depending on the type of auction you go to. The investor needs to decide upon the type of auction they want to attend, and do their research to find out what the rules for funding are.
Cash Only Depends on the County and State
Funding the purchase also depends on the state that the auction takes place in. In some states, you have to pay cash immediately when bidding on a property at a sheriff sale. If you are using a lender to fund the purchase, and have not already received the funds, then the lender will often have to be there with you at the auction. However, most lenders will not do this, except for a few of them that the investor needs to find on their own. This is possible, as there are lenders that exist who do this.
Many foreclosure auctions require payment in full immediately after the winning bid, and some only require a specific before auction deposit ammount. Also a set time period in which to make the payment balance will exist. Not all auctions, however, have 30 day time periods to pay. In some counties, sherriff sales allow 10 calendar days to pay the balance. Other counties can allow up to 21 days to pay the balance after an auction.
To find out how much funds is required to bring to the auction, try contacting the auctioneer of the auction and ask them how much money is needed. A certified check for $5000 is accepted at many auctions as an intent to purchase a property. These checks are only signed over to the auction company upon the winning bid.
Types of Funding Accepted at Foreclosure Auctions
Cash or Certified Check
Overall, banks usually prefer cash buyers over other types. So, if you can get the funds all in cash to pay for the property, that is likely best. Foreclosure auctions are generally cash only at the courthouse to purchase the property at the winning bid amount. Having the lender at the auction could suffice, but an investor needs to contact the auctioneer or auction company to find out whether this is accepted.
It might be possible to do buy a property at a sheriff with a normal home mortgage but this might be too difficult for most buyers due to the details involved. Also, it is unlikely that an investor will get a conventional mortgage for a purchase at a trustee or a sheriff sale. Most mortgages require access to the property to perform appraisals and home inspections, and these are not guaranteed for auctions.
Hard Money Lenders
Hard money lenders can go to auctions with the investor to loan them the money to pay for the house at the auction. However, the investor needs to be aware that hard money lenders charge higher interest rates than normal mortgages do. The requirements and willingness to do this depends on the hard money lender the investor is using. A credit check is usually required, but is not mandatory. If the investor has enough funds to put down on the property, the lender may not require a credit check at all.
The foreclosure process can take a very long time, depending on the state and the home owners involved, and this can be expensive for the banks. Therefore, they are more keen on getting a fast return either at auction or on the market afterwards. This means they prefer buyers that have all the guaranteed funds available to purchase the property.
Funding and the Real Estate Market
If an investor is planning on attending an auction, the planned time period to do this needs to be considered to match the funds with the purchase price. This is due to changing market conditions that can alter the prices of homes going to auction. If the investor waits too long, the prices could go up over the course of months or a year, or drop as well. Also, the market can affect the interest rate the lenders provide to investors to purchase properties. For example, home prices could decrease but interest rates rise on the hard money loans meaning more cost to the investor down the line, depending on how long they hold the house before resale.
Get Clear on How Much Cash You Need
Property auctions can be great places to purchase investment properties. However, investors need to know how to properly finance their foreclosure auction purchase — how much cash to have on hand, how much they can finance, and when all the payments are due.
Are auction homes cash only? Knowing this is essential to success before participating in foreclosure auctions.