Step 5: Get financed.
Now that you’ve found the property that you’re going to bid on, you have to make sure that you’re able to get it at the auction. Having a cashier’s check made out to you is the first part.
Most auctions, whether they are run by banks or by a third party auctioneer, require that you have a cashier’s check for 10% of your bid on hand, in order to get in.
You’ll also need to secure a bridge loan. Successful bidders only have 30 days to come up with the remaining 90% of their bid, and no bank is going to be able to turn that kind of money around in such a short time, according to Staniford.
Bridge loans are not difficult to get. Sites such as LenderLab.com and iBank.com can put you in touch with a lender in your area. However, the interest on this hard money loan could be as much as 25%. You won’t have to resign yourself to paying outrageous interest rates on your home loan, though. Once the sale is complete, you can refinance your home through a bank and pay off your bridge loan.
Step 6: The auction.
The auction itself can be jarring. You can find yourself in a room full of screaming people for hours.
“Auctions are emotional,” says Staniford. “People get caught up in the challenge.”
Keep your mind on your property. Arrive early, leaf through the auctioneer’s brochure and wait until your property is called.
Keep your cool. Think before you raise your hand to signal a bid. If someone makes a higher bid on a property, let them. It’s better to lose out on a foreclosed property and find a new one than to exceed your budget and lose your financing.
Step 7: Completing the sale.
If your bid is accepted, you’ll likely be whisked off of the bidding floor and into a financing area. While there, you’ll meet the owner of the property and provide them with all of your financial information including where you work, how much you make, how much you have in your bank account and the entity that will finance your purchase.
Step 8: Closing.
Though buying a home at auction may be a little bit unorthodox, the closing generally isn’t.
Your attorney will still have to consult with the bank’s attorney and transfer the title before you can move in. You may have gotten a house for a song, but you’re not going to get a break on the closing and legal fees.
Keep in mind, if sometime between the auction and the closing, you want to back out of the deal, you’ll be able to, though not without consequences.
“You’re not required to buy the house,” says Brian Tracz, a New York-based attorney who specializes in real estate. “The question is whether or not you’ll be get your [deposit] money back.”
Tracz says that the terms of sale in the brochure probably indicate that you’ll lose your deposit if you back out of the deal, but you should always check them yourself before you start the bidding process.
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