Did you know construction loans can sometimes be used to purchase a home at auction?

Lenders won’t provide a conventional mortgage to buy an auctioned home outright. Properties that come “as-is” are financially risky and often require critical repairs—but that doesn’t mean you can’t finance a home purchased at auction. Some homebuyers use construction loans to get the homes they want.

Auction sales happen quickly

When you’re the winning bidder at a home auction, contingencies for financing are not allowed. Your financing needs to be in place on auction day.

You’re expected to provide a cashier’s check or wire transfer for the deposit and balance in accordance with the auction’s terms. Winning bidders are usually required to make a deposit of 10% of the purchase price or at least $5,000 within 1 to 3 days of the auction’s close. The balance may be due in as few as 10 days.

Start with a construction loan, later refinance with a mortgage

A construction loan that covers the cost of the purchase and repairs can be used to finance an auction home. To go this route, you need to work closely with a lender and get prequalified for the loan.

No two properties are the same, and your lender will want documentation on the property and its condition. Keep in mind that auction purchases cannot be contingent upon inspection. Winning bidders purchase a house “as-is.”

If you win the auction and pay with a construction loan, you can set the wheels in motion for repairs and renovation. When the work is complete, the construction loan can be refinanced with a conventional mortgage.

Remember, the auctioneer gets a fee, too

Buyers at auction need to keep in mind that on top of the bid price, they’ll also have to pay the auction house a fee. Often, this is 10% of the winning bid. Take this into account when budgeting and getting pre-approval for a loan.

Also, read the auction house’s terms closely to see if there are additional buyer costs such as closing fees.

Talk to us about financing an auction home

At Consumers, lending decisions are made locally, and we might be able to help you finance a home purchased through auction with a construction loan that can later be converted into a conventional mortgage. Give us a call at 800-991-2221 or talk to one of our mortgage loan officers.

Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.