Investing in real estate through foreclosures has proved to be a profitable endeavor for an ever growing number of people. Typically, foreclosed real estate is purchased through an auction process. As a result, a person interested in making a purchase of this type of legally distressed property typically needs to come up with the full amount of the bid on the day of the auction of within a very short period of time after the event.
In some cases, foreclosed real estate can be purchased via a direct sale from the mortgage lender who has regained title to the property to a purchaser. In such cases, obtaining mortgage-backed financing to effect the sale may not always be possibility. For example, the property may be in such disrepair that a lender cannot justify taking the real estate as collateral for a loan.
Although the first scenario is far more common, in both instances a person interested in buying foreclosed real estate will need to look to unsecured loans to buy foreclosures. In the alternative, a person may also investigate the possibility of unsecured lines of credit to buy foreclosures if the individual intends to purchase more than piece of property. In the end, a person interested in such an investment simply may lack the cash necessary to complete the sale.
How Unsecured Loans to Buy Foreclosures Work
Unsecured loans to buy foreclosures are obtained to purchase a specific piece of real estate or specific pieces of real estate. Although any property purchased will not be used as collateral for the loan — there will be no mortgage guaranteeing payment of the loan — a lender will want to know the purpose for which the financing is sought.
The fundamental key to taking advantage of unsecured loans to buy foreclosures is obtaining specific pre-approval in advance of any auction of this type of real estate. As noted previously, the full amount of the bid will be due at the time of the auction or fairly immediately after it. There simply is not time to go through a loan approval process following the winning bid at a foreclosed real estate auction.
How Unsecured Lines of Credit to Buy Foreclosures Work
A person intent on buying foreclosed real estate can think of unsecured lines of credit to buy foreclosures as something akin to credit cards. Through an unsecured line of credit, a person obtains approval from a lending institution (typically a bank or savings and loan) to borrow up to a certain amount of money.
The financial institution typically issues checks or even a debit card to the person who obtains a line of credit. He or she can “spend” the line of credit — in this case, for the purchase of foreclosed real estate.
Unsecured lines of credit to buy foreclosures are particularly useful to an individual interested in investing in foreclosed real estate through the auction process. Funds can be “drawn from” a line of credit with relative ease. Moreover, an investor specifically knows what amount of money is available to procure foreclosed real estate.