Assuming a loan and getting an FHA 203(b) are just two ways of buying a foreclosure with no money down.
Whether you're looking to purchase an investment property or planning to buy a great new home for you and your family, there are some excellent bargains to be found buying foreclosures. Among the many advantages in pursuing a foreclosed property is the fact that you can often find more generous terms and prices. While there are some situations that will require you to have all the cash you need to purchase a foreclosed property, there are some programs (designed to encourage folks to take over foreclosed and distressed properties) where you can get into a nice property with no money down (and no, this isn’t a late-night television telemarketing scam!) Whether or not you and the home you want to buy qualify for these options depends on several factors, such as whether or not the home is currently occupied, whether or not it is in livable condition if it is not occupied, and what kind of credit you have. This guide will give you some idea of the parameters and availability of such programs.
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In general, there are a few major categories of properties that fall into the “foreclosed” property market, and each of them have different opportunities whereby you can pursue purchase with no requirements for a down payment:
Homes in pre-foreclosure
The first steps in your pursuit of foreclosed properties will probably bring you in contact with lists of properties in your area in a state of pre-foreclosure. When a homeowner falls behind on mortgage payments, and the arrears hit a contractually defined threshold (typically 90-180 days) the mortgagee issues a formal Notice of Default (NOD) and possibly a Notice of Sale (NOS). These notices will trigger a timeline and spell out the specific steps a homeowner must take to get current with a mortgage and avoid the formal initiation of the foreclosure process. These notices need to be filed with the Country Clerk where the property is located in addition to being sent directly to the homeowner(s). You can access current lists of the recent recipients of these notices, as they are public record.
These homes are not yet foreclosed and one of the remedies the homeowners have to get current and/or avoid a foreclosure is to sell the property. You may be able to buy directly from a homeowner in a pre-foreclosure sale. In some of these cases, you may be able to negotiate with the homeowners and the mortgagee and merely take over the existing mortgage without having to come up with a substantial down payment.
HUD homes
The U.S. Department of Housing and Development (HUD) is one of the nation’s largest “homeowners”. In addition to purchasing and managing properties for the purposes of expanding the availability of affordable housing for targeted communities and population sectors, HUD takes possession of homes that have been foreclosed on that were financed with loans backed by one its largest departments, the Federal Housing Administration (FHA).
HUD homes are available in all 50 states and you can see a current inventory of HUD homes by routinely visiting the site that catalogs and highlights them.
HUD uses a number of processes to sell these homes and while (strictly speaking) none of them are truly no money down options, some are close enough to (in practical terms) suffice.
HUD dollar homes – this is one option that could be even better than no money down. HUD's Dollar Homes initiative helps local governments to foster housing opportunities for low to moderate income families and address specific community needs by working with those local governments to offer the opportunity for folks to purchase qualified HUD-owned homes for $1 each. Dollar Homes are single-family homes that are acquired by the Federal Housing Administration (FHA) as a result of foreclosure. These homes typically require substantial repair and renovation, but he outright purchase is a simple transaction. Depending on the community where you purchase a one-dollar HUD home, you will have a set timeline and standards to meet for restoring the home to a level of livability.
Buying foreclosures with no money down from HUD in a slightly more conventional; manner involves first bidding on the purchase of a home and engaging in the qualification process for a FHA 203(b) mortgage. These loans are geared for folks who want to purchase a HUD home that needs substantial repair work or for folks who want to refinance a current residence and use up to 35 percent of the proceeds for renovation and improvements. Like to one-dollar homes, this program is not, strictly speaking, a full no money down proposal. However in the process of applying for one of these loans, you will want to request a formal inspection of the property. It's important that you be present when the inspection is done to be sure that every possible defect or project is listed in the report, from structural repairs to cosmetic repairs. Send in the inspection report with a request to have the repair costs added to the price of the home. By doing so, the repair costs will count toward your “down payment”.
Bank-owned properties
Buying a foreclosed property with no money down may be easier when the property is owned by a bank or credit union (especially if the bank or credit union is a small or locally owned one and the property under consideration is occupied by the current owner.) Local banks and credit unions keep a current inventory of homes they have taken over through foreclosure and/or bankruptcy as well as the homes they have sent NOD or NOS letters to. Perhaps the best way to initiate a purchase of one of these properties is to speak directly to the current owner before any foreclosure sale. You may be able to negotiate taking over the current mortgage without the need to qualify for a loan yourself and come up with a down payment. This is an excellent option if avoiding a credit check is in your best interests.
However, if the bank has already foreclosed on the home and now lists it as a real-estate-owned (REO) property, you will need to get pre-approved for a home loan in order to make an offer (unless you have enough cash-on-hand for the purchase.)
Finding a mortgage that requires no money down is much tougher now than it was before 2008 but there are a couple of options you may want to consider.
Veterans – if you are a veteran, the U.S. Department Veteran's Affairs (VA) may have your best loan option. As with the FHA, the VA does not directly loan veterans money for a home mortgage or refinancing. The VA guarantees the loans that are offered and managed through select banks and lending institutions. The terms of these loans are more generous than traditional loans, including some that require no down payment (if you qualify.)
Rural property – you may also qualify for a no or low money-down loan from the federal Famers Home Administration (FmHA) which now lends under the U.S. Department of Agriculture (USDA). Qualifying for these rural mortgage programs typically hinges on your the location and use of the property you have in mind.
Buying foreclosures with no money down can be a convenient option for buying yourself a new home or an investment property. Reply! can help you find foreclosed homes in your area of interest.
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