Putting up a $5,000 good faith deposit has never been in the cards on any of the ones I have seen or heard about in my county, or in Northern California for that matter.
Your bank would treat your newly purchased home as a cash out refinance, Therefore, your loan to value available will be much lower than the maximum purchase loan to value, and your interest rate is probably slightly higher.
If you are not owner occupant at the time of refinance, then the LTV will be lower still, and the rate a little worse.
if this is a fixer, lower the LTV lower some more and raise the rate up even higher.
Having two sets of financing and closing costs ( 1st , taking out the HELOC , 2nd Refinancing the auction house) Raising your interest rate and lowering your away your LTV, is likely to scrape away much of the 20% savings that you anticipate.
In addition you will likely encounter condition issues that you do not have much of or any chance to inspect for before committing all of your money. Uninspected repossessed houses are notorious money pits.
With huge risks, often come significant rewards. Sometimes an investor gets lucky. -
Me - I think I have a horseshoe....
( a cash equivalent )
You can not use the house that you are bidding on for security for a loan, until after you own it. You can not own it until after you have paid cash for it.. This is a chicken and egg situation, a catch-22.
It is a paradox that you cannot overcome.
After you have used cash to buy you can take a loan out after you have insurable title.
If you want to pay a title company to run a title search and issue a preliminary title report, and pay for an appraisal and loan processing on the off chance that you might win the courthouse bid, you could do so, but you would risk losing all of that investment if you did not win the bid.
I have never heard of anyone trying to do it that way and succeeding. Use Cash to buy at the courthouse steps. Refinance later.
basically, i would use the HELOC on property 2 as a interim loan to buy at the auction but later pay off the HELOC on property 2 and get a regular mortgage on home 1. im just thinking theoretically in case i think its worth while to go this route where i could potentially save 20% or more.
so basically, the steps would be?
HELOC on property 2
use money from HELOC to buy at the court house steps for property 1.
refi property 1.
use the funds from property 1 refi to pay of the HELOC on property 2?
anyone have insight on this? is this process possible? see any pit falls w/ my thinking?