How to buy properties at auction without investing all your own money
You may be wondering how it is possible to buy cheap properties from auctions without using your own capital. At a typical auction, the successful bidder is required to pay a 10% deposit once the hammer has fallen, and completion must take place within 28 days. If you are unable to complete the transaction within 28 days, you may lose your deposit. One way of obtaining the cash can be by applying for a loan from your local bank. But there is no denying that getting any type of loan approved by banks is a challenge these days. Even if your loan application is approved by your bank, the chances of withdrawing the monies within 28 days are quite impossible.
There is another solution though. A more efficient way of obtaining finance is to apply for a short term loan that is secured on the auctioned property’s value. Bear in mind that only up to a maximum of 70% LTV (Loan to Value) can be given to you by the lender so you will still have to come up with the remaining 30%. However, if you are buying the property below the market value, then you may be able to borrow 70% of the Open Market Value and not the asking price. Generally, if a lender is willing to lend 100% of the purchase price, the interest and other fees will be deducted from the loan amount, thus leaving you with a shortfall. If you are already a home owner, or you own other investment properties, you may be able to raise a secured short term loan on them (providing there is enough equity in your existing properties).
How can borrowers get short term loans paid in their accounts within a matter of weeks when banks take months? Due to the financial crisis that hit the banks, they now have less money to lend people as they have been accumulating their cash reserves. The lending criteria have toughened up with stricter rules and most banks underwrite the loan applications manually. On top of all this there have been increased redundancies, which have lengthened the time it takes for loans to be approved and released. Even if your loan status is at ‘Approval In Principle’ stage, this doesn’t mean your application is definitely agreed. In fact, the loan request can be withdrawn at any time or for any reason. Short term loan providers work quite differently to banks as they secure the loan against the property. Providing they are fully satisfied with the condition of the property and its selling potential, they will grant you the loan. If you have a poor credit history and at some stage you wish to refinance, this will be a problem for the loan provider because of the current instability of the financial market.
To go through the application process for a short term loan, you need to submit all the relevant information to the lender, and subject to a satisfactory valuation report, a copy of which will be forwarded to the Funder, an offer is presented to you. Upon acceptance of this offer, your appointed solicitor will carry out the necessary legal process to complete the purchase and for the funds to be released. It normally takes between 5 to 10 working days for this process to complete, although you can shorten this by starting the legal process before a valuation has been carried out and receiving a final acceptance from the Funder.
Contact Sunrise Commercial Finance here for more information.