Buying multi family homes in pre-foreclosure: financing options

For the homebuyer or investor, buying properties in pre-foreclosure is often a good way to get a great deal. If you are considering buying multi family homes in pre-foreclosure, financing options are generally the same as they are for other types of properties, although there is a sense of urgency with the pre-foreclosure sale that may not exist with a traditional home sale.

When financing the purchase of a multi family home in the pre-foreclosure status, the buyer has most of the same options available as s/he would if purchasing a traditional home. It can be helpful to understand the pre-foreclosure process before looking into financing, if for no other reason than to understand how brief the pre-foreclosure process can be.

Pre-foreclosure is the first step that a lender makes before repossessing the home and putting it up for sale in order to recoup the money that was extended to the owner for purchasing the property initially. It begins when the lender issues the owner a Notice of Default.

This notice will inform the owner of the lender's intent to take the home into its possession if the owner does not pay the amount due in delinquent payments. This notice will also layout the timeframe that the owner has to make the payments. This can be usually anywhere from three to five months. During this period, the owner can choose to sell the home, provided that the pre-foreclosure sale meets certain requirements:

• The property must be valued at a minimum of 70 percent of what the owner still owes to the lender. In areas of the country where property values are still low, this can present a barrier to offering the property under pre-foreclosure terms.
• The property must sell for at least 95 percent of its appraised value.
• The owner must be delinquent by at least two payments, so owners who initially receive a Notice of Default and then catch up a payment or two may find themselves needing to wait before they offer the property for sale.
• The final requirement is that the sale of the property must take place during the time allotted to the owner in the Notice of Default.

When it comes to financing the purchase of a multi family home in pre-foreclosure, potential buyers can applying for a standard mortgage with a chosen lender. The lender's stipulations in regards to purchasing the property may necessitate that it be inspected and appraised by professionals, which can take time to complete. If the multi family home in question is owned by a federal agency such as the Department of Housing & Urban Development (HUD), there may be attractive financing options available for a prospective buyer, especially if there are existing tenants living on the property and the property is serving some need in the community such as:

• Providing affordable housing units
• Providing senior housing or affordable housing for the elderly
• Providing housing for disabled citizens
• Being located in an economically distressed area targeted for improvement or urban development
• Being of historical significance.

There is also always the option of using cash for the purchase, and in some circumstances, prospective buyers may be able to work out creative financing with the original lender, such as making up the arrears and assuming the existing loan, perhaps even modifying its terms.

Just as the prospect of buying a multi family home in pre-foreclosure presents some opportunities for great values, they can also present opportunistic financing options under the proper circumstances. Having a skilled advisor in your corner is an invaluable asset and Reply! can help by connecting you with experienced local real estate professionals, today.