Step Two: Pre-Approval
Once you understand the pre-foreclosure process, you’ll need pre-approval for your new mortgage. It’s essential to get your pre-approval before you start looking. Not only will a real estate agent want to see your pre-approval, but you’ll want to see it, too. Pre-approval lets you know exactly how much you can spend on your purchase.
If a problem arises during the pre-approval process, you can figure out the solution right away. Better to take care of a roadblock early and not in the middle of negotiations. Keep in mind that pre-approval isn’t the same as getting a loan. It means that you have been determined to be creditworthy enough to borrow. The lender does not have to give you a mortgage just because you’ve been pre-approved. As the borrower, it’s your job to make sure you’re ready to make those mortgage payments before getting your heart set on a new property.
What Type of Lender Do I Need?
If you’re buying a pre-foreclosure that’s in good condition, a regular lender is all you need. Homes needing serious repairs may make it difficult to find a traditional lender. In this case, consider using a hard money lender.
There are some significant drawbacks to using a hard money lender, and it’s not appropriate to use one if you are new to home investing. Interest rates on loans with hard money lenders are much higher. It’s a lot easier to get into financial trouble this way. Not only can those repairs become more expensive than initially expected, but the interest rates make it difficult to pay down the debt.
Lastly, houses don’t fix themselves. All major and minor repairs must be done by you and the people you hire. Be sure you have money and time in your schedule to take on project management.
How Long Does a Pre-Approval Last?
Pre-approvals usually last three months. If you don’t find the right pre-foreclosure property by the end of the pre-approval, you can always reapply.