Everyone wants a good deal when buying their next home.  Some of the best deals are found on homes that have been foreclosed or purchased at an auction.  However, these good deals can come with hidden problems both with the subject itself or getting the home financed.

Most loan officers have been through the process of helping a borrower purchase a foreclosure and the extra steps that can come along with those transactions.  The non-responsive seller, the repairs, the days of waiting for a simple response on a question, and much more!

How to handle auction fees

But what about auctions?  I am sure almost all of us have bought something on Ebay and the excitement of getting a great deal on item from their site! So it makes sense the idea of bidding on a property and getting it at well below market value is even more exciting!  Auctions are not quite as common as foreclosures, so getting to know what you can and cannot do is hard to find in the guidelines.

One major topic that comes up regarding auctions, and is honestly a hard answer to find, is the question can you finance buyer’s premium in the mortgage?  Many auction company’s charge a percentage to the buyer, often called a buyer’s premium.  This fee can be up to about 10%.  As an example, if your borrower is the lucky winner at an auction and their winning bid for a home is $150,000 the buyer’s premium will be $15,000.  If you handle the purchase application incorrectly this will cause your borrower to fork out this extra $15,000 in addition to the down payment and closing costs!

The good news is FNMA does allow the final sales price of a property purchased at an auction to include the buyer’s premium and technology fees.  The answer is supported and found on the “top trending questions for lenders” section of the FNMA website!

Here is what you need to do to show you are the expert when it comes to helping the borrower finance their home purchased at auction.

FNMA auction guideline

 

Step by Step Instructions

The first step for the purchase agreement is that the sales price must have the buyer’s premium and technology fee’s included.  So using the example above the sale price will be $150,000 for the home and $15,000 for the buyer’s premium for a total of $165,000 sale price.  If the selling realtor or auction company does the PA property the $165,000 will be used for the LTV (of course the rule of the lower of the sales price or appraised value still applies).

I hope that help underwriters feel confident to approve these loans and helps out our friends who work in sales land one more new client and a great referral source from being the expert on mortgage underwriting guidelines.  Speaking of being an expert we always ask that you check out UberWriter for tools, training, and more great blogs like this one to learn all about the mortgage industry!  You can find our website at www.uber-writer.com