Because most lenders who have taken possession of foreclosed properties insist that they be sold for at least two-thirds of their appraised value, any borrowers whose credit record qualifies for a loan of that amount will be able to bid on the properties. Should they pick up the properties at 33% discounts, they can use the difference in the appraised value of the homes to get a building loan.

Capitalizing On Foreclosure Loans

Suppose, for example, that a lot valued at $60,000 is sold at a foreclosure auction for $40,000, and the property's new owner borrows against his $20,000 additional appraised value to finance a loan for the cost of placing a home on the property. If he spends $200,000 in construction costs, home, sells the home with the $60,000 lot for $350,000, he can pay off all the loans and walk away with $90,000.

Using Foreclosure Loans In Pre-Foreclosure

Those who want to maximize their chances of getting homes at deep discounts should pay attention to foreclosure listings and be willing to contact homeowners who are still in the preliminary stages of the foreclosure proceedings. A homeowner might be interested in selling to a private party rather than see his or her home sold at auction. The homeowner might settle for receiving a percentage of their accumulated equity and having the balance of the mortgage paid off. They will get some cash for a down payment on a new home, and have a much easier time finding a lender because they have avoided foreclosure.

And those using foreclosure loans to arrange these kinds of pre-foreclosure purchases will not have to wait for the property to reach the auction block, where they may not be able to compete with other bidders. The best time to approach a homeowner is after he or she has been served with a demand for payment stipulating the amount of money it will take for the foreclosure process to be stopped.

Once the homeowner knows exactly how much it will take to keep his or her credit record free of a foreclosure, you can begin looking for foreclosure loans with which to purchase the home and get the homeowner off the hook. But some homeowners may delay too long, and even those who have foreclosure loans in the pipeline and are drawing up the sales papers may be too late to prevent the foreclosure.

Banks are in business to make money. When they offer to give homebuyers mortgages. They do so because they think those home buyers will be able to pay them back at a profit. When those home buyers go into default, the banks want to get their property back and put it in the hands of someone who can pay them so that they make a profit.