As a home buyer, there is very little thought about the idea of defaulting on your loan when going through the steps of purchasing a home. However, this can happen even to people who are careful about their finances. A sudden job loss or an unexpected large bill can set people behind, and then they cannot afford to make timely mortgage payments. Foreclosure seems unthinkable but the impending notice becomes a reality for may homeowner. Fortunately, there are several ways that an investor can help you stop the foreclosure process. Here are a few ways that investors can avoid foreclosure and help you out of an unwanted house or debt.
Real Estate Investors
If you have to sell your home fast then an investor can be your best friend and closest ally. Regardless of if you want to use a real estate agent or if you want to try to sell your home by yourself, the average time a home will sit on the market is about 3 months. If you deal with an investor they will be able to do the inspection, make a plan, and usually close on the home in a matter of weeks, sometimes even days. Because, for these people, this is their entire profession they will have all of the money, and legal documents, already ready to go so it will speed up the process. This is very different then trying to deal with a traditional buyer during the home sale transaction because you will usually wait for weeks, and months, for them to get all of the paperwork and financing in order.
Discount The Sale Price
During the preforeclosure process, one of three main ways that investors can step in is purchasing the home directly from the homeowner at a discount. Often the home will be below the market value of the property so it becomes a profitable purchase for the investor, but this is not always the case depending upon the closing and acquisition costs of the transaction. However, at times when it is done, the real estate investor will take care of all the costs of selling a house. For the homeowner, they are able to walk away from the situation without having a large debt looming of their head.
Taking Over the Loan
In the real estate business, taking over the loan and making up the back payments is called purchasing a home "subject to." This means that the investor pays off the missed payments to bring the loan current and then starts paying the loan himself. However, the loan is still listed and signed under the homeowner's name, so the homeowner is still held responsible if the loan starts to fall behind again. The benefit to the homeowner is that foreclosure is avoided and the loan becomes current. The benefit to the investor is that the home can be acquired without many of the costs of a standard sale such as the loan and appraisal fees. However, most lending firms create contracts in which "subject to" cannot be done since the full amount of the loan is due when title of the home is transferred upon sale. In practice, however, lending institutions would much rather have the loan become current and it matters little as to who the authority is so long as the payments are timely. This strategy can be a very important tool, but as you can see, it is not without its risks. All parties must have full understanding of the documents and how they are prepared.
Discount Loan From Lender
When selling your home, this is more commonly referred to as a short sale. The investor negotiates with the lending institution to strike a deal in which the lender will transfer the property at a discount. Why would the lender do that? For one, financial institutions are in the business of making a profit through loans, not in selling homes. Second, it is much better for the bank to receive less cash now, than waiting for more cash later during which the bank must own and maintain the home and try to sell it at market price.
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Looking for real estate advice to help you sell your house? Visit our blog to find the information you need to get from from the start of your home sale to the closing. You need to be prepared before putting your home on the market.
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