How to Buy a House at Auction With a Loan

For most people, buying a home means getting a loan. However, the best real estate bargains tend to be found at auction, and that’s a scenario in which you need enough of your own cash to purchase a property outright, right?

Wrong; it’s actually entirely possible to buy a house at auction with a loan, so you don’t need to be independently wealthy to follow this path to homeownership. Let’s look at what you’ll need to do to achieve this at a time when real estate prices are still rising.

Choose the right type of loan

Real estate auctions move a lot quicker than traditional property transactions, so you need financing that reflects this.

You could buy at auction using a standard mortgage, although you might struggle to meet the other requirements of placing a winning bid.

For example, a hefty deposit is required shortly after your bid is accepted and the hammer falls, which of course will be on top of any deposit you have put down for the mortgage. Then there’s the paperwork and processing time, which could complicate matters of the mortgage process and mean that your dream property slips through your fingers because of administrative delays.

This is where hard money loans come into play. Browsing the hard money loans on this site will let you find financing packages from private lenders that do not have the same red tape to worry about as full-blown banks.

As well as getting approval pushed through quicker, hard money loans are ideal for buying property at auctions because of how quickly the cash can be available to complete the transaction once you have won the lot.

There are some caveats to keep in mind, such as the higher interest rates and the shorter repayment periods that come with hard money loans, which is why they are preferred by people who want to flip properties rather than live in them permanently.

However, you could use a hard money loan to seal a time-sensitive deal, and then switch to a standard mortgage afterwards to avoid hefty fees in the long term if you are looking for a place to call your own.

Before you decide on a hard money loan, consider the alternative financing options available. For instance, you might want to learn more about ladder loans, which can offer adjustable rates and flexible terms that might better suit your financial situation for the long haul. Understanding all your options will empower you to make the most informed decision, ensuring that your entry into homeownership is as smooth and financially advantageous as possible.

Organize everything before the auction

When buying a home at an auction with a loan, you can’t afford to leave anything to the last minute. That means having your loan sorted out in full ahead of the auction date.

If you don’t make the right arrangements and you then place a winning bid, you could be responsible for paying costs and even lose a deposit if your loan then falls through.

Indeed some auction organizers will require proof of financing or a deposit to even allow you to bid in the first place, especially in the case that you are doing this remotely via an online service rather than in person. This protects them from mischief and disruption from unserious or unscrupulous individuals.

Research the property thoroughly

If you are able to get a loan to purchase a property at auction, this means there is even more of an impetus to properly look into the house in question to make sure that it is up to scratch.

Even if the home is in poor condition and you intend to renovate it to either live in it or sell on, you need to be completely in the loop with regards all of the issues that are present, or else you could over-bid and end up with a dud.

Last of all, remember to set an upper limit for what you are willing to spend and stick to it, especially if your loan is for a fixed amount. Overstretching yourself is never a good idea, no matter how much you want a house.