Foreclosure properties can be a potential goldmine, even for a novice real estate investor. Since foreclosure properties are sold for well under market value, making a purchase and repairing and cleaning up the property can mean large profits on resale. While most individuals assume that purchasing property must be done with impeccable credit and a lot of investment capital, there are ways for real estate investors to make a foreclosure purchase with no money down and no credit.
Locate owners of distressed properties. Distressed properties are those posted for a foreclosure sale. Foreclosure sale notices are posted at the county clerk's office where the property is located, and are of public record. The best time to do this is after the first Tuesday of every month, which is when the last batch of foreclosure properties were sold at auction, and upcoming foreclosure sales are newly posted.
Contact the lender who is going to foreclose on the property. Propose a loan assumption of the property, without having to qualify. A loan assumption without qualification simply means that you are offering to take over the mortgage payments for the bank, but that you are proposing to do so without the bank qualifying you based on your credit. Many times, smaller banks will agree to this if you can prove that you have at least three months of reserve payments on the mortgage in the bank.
Contact the distressed property owners. The easiest way to contact these property owners in most cases is by making a visit to their property directly. Speak to them about taking over their loan payments using an assumption. Doing so will mean that you have the deed and own the property, but that the past due payments are wiped out and the property does not have to be sold at auction, and they will not have a foreclosure haunting them on their credit history. If the property owners agree, you can proceed with the purchase.
Write up the agreement to purchase with an addendum for a loan assumption. This agreement is a standard contract that must be completed on state-approved forms. Obtain signatures from the current resident of the property, and submit it to the bank that is taking them to foreclosure. Once the lender approves the assumption, you are able to open escrow and close on the property.
Submit the contract and applicable addenda to a local title insurance company. While, in most cases, you will be required to pay certain fees for title insurance and closing costs, on a loan assumption, these are typically minimal. The title company will review all of the documentation and schedule the closing appointment. This will normally take at least one week.
Close on the property in front of a notary. Have the sellers sign the final documentation conveying the property to you, as well as the bank owner of the property, so that you are the new owner of record on the deed. Once the closing appointment is completed, you will receive your keys and the bank will have transferred the property in your name. At this point, you have made a foreclosure purchase with no money down and no one checking credit.