The chance to snatch up a property at auction is alluring, especially when you hear about the unbeatable bargains and fast acquisitions. But what often goes unsaid is the high risk and stringent payment conditions these purchases require. Auctions typically demand payment through cash or cashier’s checks immediately or very shortly after the sale.
Despite these restrictions, financing options for auction properties do exist, though they come with their own challenges. Learn more about the unique aspects of buying auction properties, including how the purchasing process differs from traditional methods and what financing options are available.
The path to homeownership is markedly different when you buy a property at auction compared to the traditional market. Once the auctioneer’s hammer falls, you’re locked into a legally binding contract to purchase the property, with payment usually due in full within a short period. The timeframe for making your payment depends on whether the auction sale is unconditional or conditional.
In an unconditional sale, the hammer’s fall signals your commitment to pay a 10 percent deposit immediately, with the remainder of the funds due within 28 days. Failing to meet this deadline could result in losing your deposit and potentially being liable for additional costs.
Conditional sales offer a bit more breathing room, which is ideal if you’re planning to finance your purchase with a mortgage. Here, buyers typically have 40 business days to exchange contracts and complete the sale. This extended period allows financing to be arranged, though it’s crucial to know about any special conditions that might alter this timeframe.
While auctions are known for having cash transactions, various loans can facilitate real estate purchases at auction, especially if you’re looking to invest for the first time.
Hard money loans are a favorite among real estate investors looking to flip properties for a profit. These loans are secured by the property itself and are known for their quick approval times and short repayment periods. Hard money lenders are primarily concerned with the value of the property and the borrower’s equity in it rather than traditional credit metrics, making these loans accessible even to those with less-than-perfect credit histories.
The biggest downsides are the higher interest rates and upfront fees. Even so, if you’re looking to renovate and resell quickly, the cost could be well worth the advantage of speed and flexibility.
Also known as cash-out refinancing, delayed financing is a strategic option for buyers who have the means to purchase auction properties outright but wish to quickly free up their cash for additional investments or to repay personal loans. After buying the property with cash, the buyer can apply for a mortgage and, if approved, use the loan to recover a significant portion of the purchase price.
This approach requires the property to appraise at or above the purchase price and may also hinge on passing a home inspection. It’s an excellent way to leverage the equity in a newly purchased property—just be prepared for the rigorous appraisal and inspection that accompany traditional refinancing.
If you already own a home, tapping into your home’s equity can provide the funds needed to venture into the auction market. Home equity loans are secured against your current property, offering lower interest rates and potentially larger loan amounts than unsecured financing options.
This is an attractive route for homeowners with significant equity looking to invest in additional properties. However, it’s important to remember that if you’re unable to repay the loan, you risk losing your home, making it necessary to have a solid repayment plan in place.
Personal loans offer flexibility that’s hard to beat. They’re ideal for covering smaller auction purchases or the initial deposit. Without the need for collateral, funds are accessible very quickly, often within days of approval. However, the lack of collateral means lenders may charge higher interest rates. The amount you can borrow, the interest rate, and the repayment terms vary widely between lenders, so be sure to shop around.
Peer-to-peer (P2P) lending is when borrowers pair up with individual lenders through online platforms, bypassing traditional financial institutions. This may result in more competitive interest rates and flexible lending criteria. P2P loans can be funded quickly, often within a few days, making them viable for auction purchases.
However, borrowers should be aware that these loans often come with higher down payments and interest rates. The terms can also vary significantly between platforms, so it’s wise to compare your options.
Using a traditional mortgage for an auction purchase is challenging, largely due to the longer processing timeline. The key is to find a lender willing to expedite the approval and funding process or to focus on conditional auctions that offer a longer closing period. Some lenders specialize in working with auction buyers and may offer tailored products designed to meet the tight timelines of auction sales.
Not all real estate auctions are created equal. Dakil Auctioneers, Inc. is a family-run business serving the Oklahoma City metro area for over 30 years, making us a trustworthy source to bid on your next auction property. We offer online bidding options and in-person auctions at properties around Oklahoma. Whether you’re a seasoned real estate investor or looking to make your first auction purchase, we’re here to guide you. Visit our upcoming auctions page or contact us at (405) 751-6179 to learn more.
