Can you buy a house at auction with a mortgage? Yes, getting a mortgage to buy a home at auction works the same way as buying through the more traditional route. You should contact a mortgage lender, either at a branch or through a mortgage broker, to let them know your situation. Your provider or broker has been in a similar situation before and knows how best to help you.
You should speak to your transfer agent (the attorney handling your transaction) as they will advise you on the process due to their extensive experience of buying a home at auction. They can even do the bidding for you if needed. In this guide, you will find everything you need to know about getting a mortgage to buy a house at auction.
Can I buy at auction with a mortgage?
If you can. First, the property must be mortgage free with no liens, so you will generally choose a property in good condition. Your financial advisor should then refer you to a lender who can process your application and provide a mortgage quote within the short time available for auction. You should have your mortgage and your mortgage quote ready when you bid in the auction room because if you are successful you will be exchanging contracts in a jiffy and you want your financing secured so it is available to complete.
There is an alternative and that is the financing of specialized auctions; it can be more expensive but can be arranged very quickly to finance your purchase in the meantime while a mortgage is being processed. It is very important to do your research in advance and not be tempted to bid if you have not secured your money and have not confirmed availability.
Can You Buy A House At Auction With A Mortgage?
Yes, you can get a mortgage on a property bought at auction. In a competitive real estate market, buying a home at auction is a great way to avoid the headache of offers and rejections.
However, before you make that winning bid and get your pre-approval to secure financing, make sure you know the fine print of auction property financing.
Here are some things to know if you are planning to finance a home at auction.
More information about the terms and conditions of housing auctions
Buyers should be aware of the terms of the auction before purchasing a property. In most cases, they are on the auctioneer’s website and read before a live auction begins. The terms and conditions may display something like this:
- All properties for sale are “as is” with no improvements or repairs by the seller.
- 10% or a fixed deposit is due on the day of sale and the balance is due within 30-45 days
Properties are sold without unforeseen circumstances
Most auction objects are sold without unforeseen circumstances. Inspections are generally permitted before the sale of the property, but the sale is not subject to post-auction inspections or obtaining financing from the buyer.
Know the Risks of Using a Loan to Buy a Home at an Auction
When you purchase a property as is, you agree to accept the home in whatever condition it is in at the time of purchase. You also take on all financial risks and time pressure.
The property cannot be appraised for the amount of the purchase. The buyer may be refused the loan. Either way, the buyer remains responsible for the purchase of the property.
You should always consider getting a home or property appraised if you depend on a mortgage loan to pay for it. Some homes do not pass the inspection due to the age or condition of the home.
Buyers should also notify their lender of any urgent deadlines and the number of days they have from closing to ensure the loan is completed on time.
What is the difference between buying a home on the free market?
Since the full cost of the property sold at auction must be paid within a certain period, which is determined by whether the lot is auctioned unconditionally or conditionally, ensure that you can obtain the full amount of financing before this period expires. Once the hammer falls, you will have a legally binding contract to purchase that property on the terms stated.
On the day of the sale, if you are the highest bidder, you must make the full 10% deposit immediately after the hammer falls on the lot, then secure and pay the rest of the money within 15 working days (unless otherwise stated mention ). in the legal package). If you do not pay within this time, you may lose your deposit, you may be responsible for paying the full amount, and you will be expected to pay the costs of reselling the property at an upcoming auction.
Conditional Auction Sale
A conditional sale is usually the best option when it comes to securing mortgage financing because the execution time is longer than with an unconditional auction. In a conditional auction, you have 40 business days to exchange contracts and complete the sale, unless the special sales conditions in the legal package specify a different time limit. If you don’t do this, you could lose your booking fee. During the reservation period of 40 working days, the seller cannot accept any other offers.
This type of sale means that you as a buyer have a higher chance of succeeding in owning and occupying a property, compared to an investor looking to expand a portfolio and who may already have the financing in place. A conditional sale also gives you more time to secure your mortgage, conduct a survey, contact attorneys, purchase home insurance, and fill out any other necessary paperwork.
How can I get a mortgage before going to an auction?
If you are not a cash buyer and need a mortgage to buy your auction house then it is incredibly important that you take out a mortgage before going to the auction. In principle, a mortgage means that the lender indicates that, in principle, it wants to lend you a certain amount.
In principle, to get a mortgage, you must provide your bank or mortgage lender with proof of your income. In principle, a mortgage can give you a clear picture of how much you can potentially pay for a home. Your mortgage can serve as your proof of affordability at the auction. The lender can repay at any time after in principle providing you with a mortgage. We recommend getting a foreclosure valuation before bidding to ensure that your lender is willing to lend on that particular property.
It is important to remember that a mortgage lender will only lend you the agreed amount based on the appraised price of the property, so be careful with your offers. If your bid exceeds the auction estimate, which is not uncommon for an auction, you will be expected to pay the difference. This can also jeopardize your mortgage application, leaving you in a tight spot, so plan a realistic budget and stick to it if you’re considering buying a property at auction that is partially financed by a mortgage.
It is also a good idea to view the property before the auction takes place. This is to make sure you know exactly what you’re signing up for before you buy, so you can avoid unexpected costs after you move.
When planning your budget, consider any extras such as appraisal fees, surveys, legal advice, down payments, and anything else detailed in the property’s legal package. With a conditional sale, the searches are usually included in the legal package, so be sure to check them thoroughly before bidding.
What happens if the lender cannot meet the delivery deadline?
Of course, you may be concerned that your mortgage lender will not be able to meet you in the short term. If you do not have the funds immediately available and are concerned about securing it within the 15-business-day period, then you are advised to bid on a conditional auctioned property so that you have a much longer period to secure the required funds. Pay.
A mortgage usually takes 2-6 weeks to process, so you can rest assured that you have plenty of time to finalize your purchase when you choose a conditional auction.
In some cases, this may take longer, but there are other financing options available while you wait for your mortgage agreement to be finalized.
A bridging loan can help you pay the costs in the meantime and can be obtained much faster than a mortgage, usually taking about 10 days. A bridging loan offers you a short-term solution to buy your property before the long-term source is liquidated. It is important to know that a bridging loan has a significantly higher interest rate than a mortgage, so try to keep the term as short as possible if you have to opt for this.
Which homes can I not buy as a mortgage buyer?
The condition of the property is one of the most important factors a mortgage lender considers before accepting your financing. Lenders generally only provide you with a mortgage agreement if the purchased home is in habitable condition and is immediately habitable or rentable. This means that if a home does not have a working kitchen, bathroom and heating, it is not eligible for a mortgage.
You should stay away from properties that are in disrepair. Mortgage lenders may not provide you with the money due to the amount of money you may have to spend to rebuild the site.
And without mentioning the obvious, you can’t buy non-mortgage real estate at auction if you want to secure mortgage financing. A home can become non-mortgage for many reasons, for example, a home with a short lease, homes without a kitchen, more than one kitchen, or homes that are considered ‘too small.
You also cannot buy a property with non-standard construction, such as concrete. Also, a home with Japanese knotweed or a home that suffers from some kind of defect, such as dry or wet rot, is not available to you.
Can I buy a property to renovate and finance it with a mortgage?
In general, a lender will not agree to provide a mortgage if the property you want to buy is in particularly bad shape. If you want to buy a major renovation project, you may need to consider other options, such as a business loan. Once the condition of the property has improved, you can apply for a mortgage. In some cases, you can go this route by making an arrangement in advance and converting your bridging loan into a mortgage.
If you plan to buy a property at auction through mortgage financing, you should start getting your plans started when the auction catalogue is published. This is usually at least four weeks before the auction day.
Potential mortgage problems at auction
As the name suggests, you will struggle to get a mortgage for non-mortgage properties. For example, lenders would be reluctant to lend an apartment with a very short lease as its value would fall rapidly in a short period unless the lease was extended. Also, your mortgage will not be approved if the home chosen has unusual features that could compromise its long-term value.
You also can’t borrow if the property you bought has a sinkhole or if your property search finds evidence of Japanese knuckles or other invasive plants.