Bridging the gap at auctions?

Question

Newbie investor, I have been through the prequal with a mortgage broker, but every auction notice I read the terms are full purchase price paid at the auction close or a short time after. What options do the more experience use to close the gap?

Answer 1

You either have the cash available on the spot, or a line of credit at a bank which will get the money to you within the time allotted. Generally, there is nowhere near enough time provided to come up with a conventional mortgage to provide the needed cash.

Friends and I who deal in such properties have enormous levels of equity in our personal residences and use home equity lines of credit when we make such purchases. All I need do is transfer the amount I need online from my home equity line to my checking account, and I'm ready to go. Depending on the nature of the property and my plans for it (short or long term) I may finance it entirely through home equity or take a conventional mortgage on it.

Answer 2

Pete, I use a line of credit at my bank as the cheaper of two options available to me when I haven't the cash. I call my banker to prepare a bank check, having warned him in advance of the likely amount I will need that day. Once or twice I have had to use the other option, a Hard Money Loan.
So you might need to go to a HML in your area & get preapproved there. Not all HML's charge a commitment fee if you don't then use the cash set aside.

I am a retired realtor, still dabbling in investment & development, and an occasional contributor to http://www.foreclosuredatabank.com/board/

Answer 3

You have to set up your financing in advance through your bank. Have them prepare for you a letter of credit which you may or may not need to present. Once you pay your earnest money (usually 15% - which you want the bank to have placed in your checking account ahead of the auction, the letter of credit validates the amount for which you wrote the check). The balance is drawn by cashiers check to pay of your purchase.

Answer 4

I am not sure what you are asking. You pay cash, just as you read. You need to obtain the loan, this is not a regular home sale, there is no mortgage. Your prequalification is invalid in this situation because the bank requires inspections, etc, so it is not assured by any means.