What’s A Foreclosure Purchase Mortgage?
In the world of real estate and foreclosures there’s a financial creature called a “purchase money mortgage.” This is the financing used to acquire a home rather than money to refinance the property or add improvements.
At first it might seem that a purchase money mortgage was the same as any other financing but that’s not entirely true. For instance, in California a homeowner with a purchase money mortgage who is foreclosed cannot be sued by the lender to make up any losses on the loan. However, if the property has been refinanced there’s no longer a purchase money mortgage and so the protection for homeowners against deficiency judgments disappears. Notice that in our example the purchase money protection does not apply to investors and that the rules in other states are different.
Foreclosure Purchase
With foreclosures the rules to finance are simply the same — if not exactly the same — as one would find with any residential property. After all, the fact that the property was once foreclosed has nothing to do with bricks and mortar, it has very much to do with the financial capacity of the last owner — or the lack thereof.
Is the buyer an owner-occupant or an investor? If an investor you may be required to put down more and to pay a somewhat higher rate.
What’s the value of the property?
Does the purchaser have good credit?
Can the purchaser document his or her income and employment?
Cash, of course, solves all foreclosure financing problems while loans from hard money lenders with stiff rates, huge down payments and lots of points up front are not worth considering.
Lastly, if you’re buying a foreclosure from a lender see if the lender will provide financing as part of the transaction. In this situation the seller and the lender are the same, so such financing can be seen as a formal and institutional owner take-back of sorts.
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