What financing options may exist for an auction sale?
Although the deposit is required to be an on-hand asset (i.e. cash), it is often possible for the remainder of the purchase price to be funded from other asset types. Options may vary from various lines of credit to loans. Purchasers can explore a variety of financing options, including lines of credit and loans.
Lines of Credit
If you have ever made a purchase with a credit card, purchasing a home with a line of credit is very similar. A line of credit is very similar to that of a credit card. A lender allows you to borrow funds from your line of credit to make purchases. Every line of credit will vary. Some lines of credit are secured, whereas others are unsecured, meaning you may or may not be required to use property as collateral. One of the most common lines of credit is a HELOC (Home Equity Line of Credit).
With a secured line of credit, buyers are typically required to provide proof of earned income or assets (e.g. real estate) in order to be approved for the loan. Some buyers tend to leverage their assets (e.g. personal residence or other real estate) to acquire other real estate assets, but a buyer needs to be well-informed of the advantages and disadvantages of utilizing a line of credit for the acquisition of real estate. Whether these assets are in the form of a house, car, or other valuable property, they will be used as collateral. In the event that you fail to make payment on the line of credit in accordance with your agreement, your assets may be subject to seizure by the lender.
Like any form of financing, a lender is taking on a risk that you may or may not make payment on the funds they are financing you. As a result, they are looking to leverage their risk against their return. The lesser the risk, the less they may require from you, the borrower. With a secured line of credit, you may qualify for lower interest rates.
Unlike unsecured lines of credit, you may not be collateralizing your property. As a result, you are potentially subjecting the lender to greater risk. As a result, your interest rate may be higher.
The decision to use or not to use a line of credit or loan as a method of payment for the purchase of property is entirely up to you, the purchaser. Whatever your perspective on…