To get good at foreclosure investing you have to get a good understanding of the causes of foreclosure. When you understand the causes of foreclosure, you will gain access to a whole new set of opportunities in what are called pre-foreclosures.
Pre-foreclosures are when people have not yet been foreclosed upon. At this stage of the process you may be able to find better deals, because you won’t be bidding against a number of other investors at the courthouse. If you understand the causes of foreclosure, you’ll be able to provide a solution that can address the borrower’s concerns and make an offer during the pre-foreclosure time period.
Divorce is a common cause of foreclosure. Often in a divorce, if the man was working and the woman was not and the woman ends up getting the home, she will have a hard time paying for it with the alimony. Or in the case of a dual income household, it is easy to have a bigger mortgage, but in the event of a divorce one of the spouses ends up having to pay a two income mortgage on a single income.
Option adjustable rate mortgages are often a time bomb waiting to go off. People stretch to buy a house where they can only afford if they pay interest only. But after a few years pass and they need to start paying principal as well, they simply can’t make the full payments. And this is often compounded by a rise in rates.
Unemployment is another huge factor. A lot of people keep little cash in reserve, so if they lose their job for any extended period, they can no longer make payments. In addition, the unemployment rate seems to be stuck at an elevated level, so it is taking much longer for people to find new jobs after losing their existing job. So this is making it that much harder for people to pay their mortgage on time.
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