There are three general sources of financing available to purchase foreclosure properties.
If your goal is to buy a home for yourself, the typical mortgage loan sources are always available to you. Investors and flippers can usually borrow money on a short-term basis for more than 100% of the purchase price if they have a credible plan for repairing or rehabbing the property and increasing its value.
Foreclosing lenders or servicing companies may be able to provide financing to you by allowing assumption of the defaulted loan. Even postforeclosure properties can sometimes be purchased with seller financing. Always ask about this option if it is important to you.
Many foreclosure advice experts tell you to obtain a line of credit at a bank for your purchase, which often is more easily said than done. If you have substantial equity in your home, you can obtain a home equity line of credit. If you have excellent credit, substantial liquid assets (stocks, bonds, or cash), and a great investing reputation in your community, you can probably obtain an unsecured line of credit.
Remember, though, that drawing down a line of credit is a short term solution. Interest rates are usually relatively high, and the line of credit must generally be renewed each year. Lenders become nervous if you have maxed out your line of credit and do not reduce it after a year or so. When lenders are nervous, you pay, through higher interest rates, increasing rollover fees, and demands that you provide collateral for your line of credit.
The HUD Good Neighbor Next Door program provides an excellent opportunity for 100% financing.
Buying at tax sales usually requires no access to borrowed funds. The tax bills are generally relatively small and can be paid from cash resources. You may need a line of credit if you plan to buy many tax sale properties in the expectation that former owners will redeem within a short period of time and pay you 12% interest on your money.
A strategy of targeting one or two tax sale properties in the hopes of being able to keep the real estate, however, should not require borrowed funds.