Buying new properties is an expensive and time-consuming process. That’s why many people turn to real estate auctions to accelerate the process and get a fair price for the property they’re interested in. However, not everyone has the financing to pay the full price of the real estate immediately. So, can you get a mortgage on an auction property?
In this article, we’ll elaborate on the process of getting pre-approved loans used for buying property and if they’re applicable to an auction property. By explaining the key elements in the process, you’ll better understand if this is the right option for your unique circumstances. Furthermore, we’ll highlight some of the most common challenges associated with loans for auction real estate and how to successfully avoid them.
Continue reading to discover how can you get a mortgage for an auction property and what it takes!
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Can You Get a Mortgage on an Auction Property?
So, can you get a mortgage for an auction property? In simple terms, yes, you can get a mortgage for an auction property. However, unlike traditional property sales, there are additional steps you must take and certain criteria you must meet. Due to the risks associated with auction properties, the main factors you should consider are the following:
- Property’s condition
- Financial pre-approval
- Finding the right lenders
- Meeting the short timeframe
Property’s condition
One of the most important steps in getting a mortgage on an auction property is ensuring the real estate is in good condition. Since lenders often assess the property’s habitable conditions, your chosen real estate must be safe and livable to get the mortgage approved.
Two essential elements during the evaluation are the kitchen and bathroom. Many lenders require the property to have a functional kitchen and bathroom to ensure there’s no need for extensive repairs. Some may also ask for a working heating system and running water before they approve the loan.
Other factors you should consider are the property’s size and structural integrity. If there’s visible damage to the property, it may be considered uninhabitable. Additionally, you must inspect the real estate for rot or invasive plant species that may result in your mortgage getting denied.
Financial pre-approval
Since many property auctions require you to submit financial proof before you’re allowed to bid during the live auction event, it’s important to obtain financial pre-approval as soon as possible. This documentation acts as a formalized agreement from your lender that indicates the amount you’re eligible to borrow after a comprehensive evaluation of your finances.
Since it includes a detailed review of your credit reports, income verification, and sometimes documentation of assets and liabilities, it’s considered proof of funds that allow you to participate in the auction. Furthermore, having financial pre-approval will help you plan out your bidding strategy and prevent you from overstepping your maximum bid limit.
Finding the right lenders
Another important factor to consider when getting a mortgage for an auction property is finding the right lenders. Since not all lenders are willing to finance auction properties, remember that you should always research the options that fit you best. For example, there are professional mortgage advisers who specialize in auction finance and are willing to guide you through the process and answer any questions you may have.
Two additional factors you should consider when choosing lenders are how quickly they can process your request and their price. By researching what the lender offers, you’ll know you’ll be able to get the mortgage by the time of the auction and that you’ll get a fair price.
Meeting the short timeframe
Since finalizing an auction sale happens 30 to 45 days post-auction, it’s important to be able to meet the short timeframe. While the typical mortgage process may take weeks and even months to finish, you should ensure you work with a lender with a fast turnaround and prepare all necessary documentation beforehand. This includes obtaining a financial pre-approval and having a backup plan like bridging loans or alternative short-term financing options.
Failing to finalize the sale within the given timeframe can result in a breach of contract with the auction house, making you susceptible to legal fines. Furthermore, since many auction platforms ask for a deposit, you will have to pay around 10% of the full purchase price.
How to Buy a House at Auction With a Mortgage
Now that you understand the basics behind getting a mortgage for an auction property, we want to give you a step-by-step explanation of the process behind it. If it’s your first time buying auction real estate with a mortgage, here are the steps you should prepare for:
- Research and preparation
- Obtaining a financial pre-approval
- Researching properties
- Attend the auction
- Finalize the mortgage and complete the sale
1. Research and preparation
Always research potential lenders and auction types to determine which option fits your needs best. Since auctions are legally binding, it’s important to thoroughly understand their terms to avoid potential legal consequences. During this phase, you should also be mindful of the lender requirements and your financial budget, including the necessary deposit and any potential repair costs.
2. Obtaining a financial pre-approval
To ensure you meet the short finalization timeframe, you should always obtain a financial pre-approval beforehand. This will allow you to register as a bidder during the auction and plan out your bidding strategy.
3. Researching properties
Conduct a thorough property valuation before deciding on the property you’ll bid for. Most auction platforms offer detailed listings where you can assess the property’s condition and features. You can also inspect the property through virtual tours or open-house events and review its legal pack, including the title deed, restrictions, and lease terms.
4. Attend the auction
The main part of the process is attending the auction and bidding for the desired property. Most online auction platforms have a maximum bid feature that prevents you from overstepping your limit. It’s important to stay mindful of your pre-approved budget to avoid overbidding.
5. Finalize the mortgage and complete the sale
If you win the auction, you’re usually required to pay a 10% deposit from the original property price immediately. However, remember that some auction centers may require this payment to be in cash or through direct bank deposit.
Once you’ve paid the deposit, it’s important to notify the lender immediately so they can prepare the necessary documentation based on the winning bid confirmation, legal pack, and property details. The finished paperwork should be sent within the predefined completion timeframe, which is usually 30 to 45 days post-auction.
Source: shutterstock.com / Photo Contributor: Gumbariya
Conclusion
Can you get a mortgage on an auction property? Even though you can buy an auction property with a mortgage, remember that there are specific lender requirements you should be mindful of. Since this process is more complex than the traditional mortgage approval, always ensure the property is in good condition and that you’ve obtained financial pre-approval to prevent any issues beforehand.
Lastly, if you’re interested in buying real estate through an auction, our team at Auction Section will happily guide you through the process and answer all your questions. So contact us today and discover how you can buy your dream property!
