Foreclosures 101: Financial viability
Almost every offer for a bank-owned property must be accompanied by either a proof of funds or loan preapproval. Offers won’t usually be entertained without one accompanying the contract. With the strict lending market, this is now more important than ever. Banks, and their agents, don’t want to waste their time with buyers who don’t have the ability to follow through on the terms of a contract. It takes more than pennies to finance a deal.
Many times, a letter from a lender saying that you are preapproved for a loan is fine, but its not the best weapon. Preapprovals are still pretty easy to come by, even in this market. They don’t hold a lot of weight so the proof of funds is the preferred choice. If you can get a balance statement from a bank account or investment portfolio that meets or exceeds the purchase price, you’ve got the best evidence for financial viability you’ll ever have. Even if you plan on getting a loan for the property, providing this statement makes you look much more able, and therefore likely, to close on a deal.
If you simply can’t pull together enough evidence to cover the entire purchase price, put together what you can. In a world of 25% down payments, proof of funds covering the down payment and a loan preapproval to cover the rest, has to make the seller feel a little more easy. Using both methods in tandem is only slightly less affective than a straight up proof of funds.
Whatever your route, it’s also important you make sure you have these documents on hand at all times. You may wait weeks or months for the right building to come along, but if you take a day or two to get your financial documents together, that might be enough time to lose out on the property. Some sellers will accept documents as dated as 90 days old, but 30 days is becoming more and more common. To be safe, make sure you have documents on hand, which are no older than 30 days.
It’s not uncommon for quality investment buys to have many offers on them. If you have the appropriate financial documentation on hand, you not only stand a better chance of beating out the less prepared competition in contract terms, you might also beat them out in the speed department as well. In this faced-paced environment when a few dollars can make a difference, drawing first blood might be just the edge you need to get that deal.