Most people try to secure foreclosure loans with other equity that comes directly from the asset in trouble: their home. You can do this by getting a second mortgage on the home and thus accessing some of the equity in the home to help pay off any missing payments and fees. This can be a good solution if you’ve experienced a temporary setback that you expect to resolve soon, like a job loss or a medical procedure that has put you out of work for a while.
Some rehabbers also use the potential value of the equity of the home after rehabilitation of a property to secure funds from hard money lenders for renovations. However, there are other ways to secure foreclosure with other equity that has nothing to do with the home. It may not even have to be your own equity that you use to secure foreclosure loans with other equity, if you have access to private lenders.
Some Types of Other Equity
If you have assets beyond the home, like a savings account, certificate of deposits, stocks, bonds, or even a self-directed IRA, then you have funds that you can use to secure foreclosure loans with other equity. What’s interesting about using other forms of equity to secure a loan is that it doesn’t necessarily have to be your own assets.
If you know of someone with assets that can secure your loan, you can offer to pay them interest for having them secure your loan with their assets. Of course, this would have to be a private lender and someone willing to trust you to pay back the original loan or have some way to recoup it if you default.
This type of negotiation is very attractive to people with extra money on their hands: private lenders. With rates of return on their assets in the bank generating 3 to 4%, it pays to have them made available to others for use that can return another 5 to 6% for doing nothing other than assuming some risk on your part. Again, you will have had to develop some relationship with private lenders to obtain foreclosure loans with other equity, particularly, if it’s not your own equity.
Times When Private Money Is Useful
If you are trying to buy a pre-foreclosure and working with an owner and the lender becomes aggressive in their foreclosure proceedings, you can secure foreclosure loans with other equity from private lenders to buy you time. These would amount to short-term loans that are repaid as soon as you close on the house and recoup your investment. If you are the owner and need monies to renovate before selling, this can be another reason to use private money.