Buying a home at auction can be an important chance to buy a new home cheaply, even if there are sometimes hidden pitfalls. Let’s look at the pros and cons of buying a property at auction and how mortgages work for this type of real estate transaction.
Buying a home at auction: advantages and disadvantages
Auctions are an alternative to buying a house in the traditional way. You can have chances to buy properties at prices below the market price. Auctions for foreclosed properties involve the bidding of goods that belonged to persons who did not pay their installments, culminating in the confiscation of property and the sale at auction; the proceeds end up paying part of the debt of the previous owner.
Buying a home at auction banks has several advantages, including very low prices. Sometimes you can get prices 20% lower than the market average. There is no risk of fraud, as all property information is available on the public sales portal. The documents and valuations are already included, in time the buyer of the auction house does not have to pay any notary fees and no commissions to any real estate agent because the purchase is made in the context of a process.
However, you should keep in mind that auction prices are affordable precisely because ownership is the legal task of an ongoing process. According to the decree rewriting Article 560 of the Civil Code, for example, the new owner cannot take possession of the property until a judge issues a decree within 90 days from the date of the transaction.
If the property does not present particular problems, it is always possible to purchase it with the help of a special loan that finances the purchase subject to the actual obtaining of the good at auction. Obtaining a mortgage loan in for the purchase of a house at auction does not differ in itself from other mortgages: to apply for it, as always, you must provide information to a bank about the income and guarantees you can provide.
In addition, you must provide the bank with the documentation regarding the auction you intend to participate in and the property you wish to purchase. A copy of the invitation to participate, the expert’s ownership report, and the preliminary notarial report must then be provided.
However, if the amount of the loan is not sufficient to cover the full cost of the purchase,
the borrower must cover the remaining part (with his own money or a personal loan).
The loan will be granted if the property will be the main residence, together with
the tax advantages that accompany it.
In which situations is not granted the mortgage loan for the purchase of a house at auction
The agreement reached between the Banking Association and the courts in 2014
is also fundamental to understanding the timing of the mortgage loan, which must necessarily
be linked to the time period for the release of the property on the market. In fact, it is possible
to conclude a preliminary loan agreement between the client and the credit institution in
which conditions are established for granting the loan of the type: the actual handover of
the house and its transfer to the owner.
Remember, this transfer could precede the green light from a court by 90 days, which could be
a certain impediment. However, if all goes well, the bank will undertake to provide financing under
the conditions set by the court for the purchase of the house. If permission to take possession of
the property or the transfer itself does not take place, the mortgage will not be granted.