Is there a type of home loan that you can use to buy a house at the county auction?

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Here is the thing I want to know. If you get pre-approved for a loan can you use that money to buy a house at the county auction (note: I have the money for the 10% you have to pay that day once you bid on it). Since you only have 30 days to pay off the rest of the balance. Also if you cannot do it that way, is there any other way of getting the finance to buy a house through the auction. Reason I ask this is because auctions start off at 2/3 the value of the house (sometimes market value is actually higher than the value given by the state). But even saving 1/3 of the value and putting 10% of the 2/3 down leaves you with some equity to keep working from so it just makes more sense to buy it there if you can manage to buy it as close to 2/3 (patience I am sure is needed). That makes it a loan for 57% of the value of the house, which keeps the “downpayment” well over the 20% that keeps you out of having to pay a PMI (Private Mortgage Insurance). Thank you.
Justin – You make a good point that I was kind of aware of. I definately don’t want to borrow more than the purchase price but you left me a bit confused does it structuring it that way still keep you from paying the PMI? Or do they just consider the purchase price when they considering weather your going to pay the PMI?
The PMI is additional insurance you pay so the bank can cover itself when people pay less than 20% of the downpayment. Thats separate and in adition from just the regular insurance you pay.

  1. Reply
    April 29, 2011 at 11:23 pm

    Hey Buya,

    To answer your first question, yes, you can get pre-approved for a mortgage that would be contingent upon the signed purchase agreement. As soon as your bid wins, you would get the mortgage in process, and should be able to close within the 30-day time frame.

    However, the second part of the question is not possible. A home is worth what one is willing to pay for it, i.e., if you purchase a home for $ 100,000 but it’s worth more, let’s say $ 150,000, the maximum amount any mortgage company could lend you would be $ 100K, or 100% of the PURCHASE PRICE rather than the value. Most lenders require a seasoning period of 90 days to 12 months, in which you must use the purchase price as opposed to the appraised value until the seasoning period which the lender requires is met.

  2. Reply
    April 30, 2011 at 12:17 am

    The last bit there doesn’t make any sense. You will still be paying insurance.

    Also, make sure your bank knows you are buying an auction house, so they don’r refuse the loan after the fact. They can refuse for any reason until close.

    I would also so the title searches etc before the auction, it is not as cut and dry as you seem to think it is. Currently, after all is said and done, most people are ending up paying over the market value. Mostly because they don’t know what they are doing and the shrils are making sure to take advantage of that.

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