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Home auctions can be an exhilarating experience with a great chance to secure a house lower than market value! Suppose you are looking to start attending auctions. You doubtlessly consider your options for paying for your dream home when you find it. However, if you don’t have thousands of dollars sitting around, don’t fret! There are several methods available to purchase a house at auction.
Ways to Finance a House at an Auction
While you generally can’t purchase a house at auction with a traditional mortgage, that doesn’t mean you are out of luck. There are several ways to buy a home at auction that don’t require cash!
You can buy a house at auction using personal, private, or hard money loans.
A personal loan is a loan offered by a financial institution. Your credit history can impact the loan amount. Like a credit card payment, you will owe money each month plus interest until you pay off the balance.
Private loans are loans where you are generally borrowing money from someone you know. It is an excellent alternative to the other loan types because they usually charge you little to no interest. However, you must pay this money back as agreed, or you may severely damage your relationship with these persons.
You are eligible for a hard money loan if you own property already. Private investors generally offer hard money loans, and your property will back them as collateral. For this type of loan, you must pay the money back on time and stay on track. They then would have the legal right to take possession of your collateral property as payment.
Home Equity Line of Credit
A home equity line of credit is where you borrow against the value of your property to receive a liquid amount of money. If you are 5-10 years into a mortgage, you can use the money you have paid your lender to buy an auction home. However, this does mean that you now owe that much more on your current mortgage. Essentially, you have extended your mortgage term for x months, depending on the amount you borrow.
Standard lines of credit allow you to borrow money based on income and assets. If it is a secured line of credit, your property will become collateral, and you risk losing it if you fail to repay your debt. Unsecured lines of credit do not require collateral but may have higher interest rates.
If you are lucky, the seller of the home at auction may agree to let you pay in installments. It will be a personal contract between the two of you and may mean you don’t have to pay anything upfront for the property. Instead, you agree to pay set amounts over a certain period.
An exception to this list is foreclosure auctions. Foreclosure auctions require cash payments for homes, and the auctioneer will need to see cashier’s checks from each bidder. Therefore, financing is unacceptable for this type of auction.