Does a cash-out refi make sense for your real estate investments?

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The average rate on a 30-year fixed-rate mortgage has climbed two full percentage points since the beginning of the year, from 3.27 percent to close to 5.5 percent as of mid-May.

 

While that may seem high compared to the recent all-time low of 2.65 percent, it is still well below the average figure since 1971, of 7.78 percent (to say nothing of the highest annual average rate recorded, 16.63 percent, in 1981).

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Borrowers went to their loan officers in droves when rates were at once-in-a-lifetime lows; refinance activity spiked by more than 250 percent. The Wall Street Journal reported that American households saved $5.3 billion by refinancing between January and October of 2020.

Rush to refinance has slowed

As rates have risen, there has been much talk about refinance activity drying up, and not for no reason. For a rate-driven refinance to pay off, a borrower generally needs to cut about 0.75 percent off the interest rate.

 

With interest rates at 5.5 percent, according to the data analytics company Black Knight, fewer than a million homeowners would be eligible to save money through a refinance. (The firm defines eligible as having a 720 credit score, 20 percent equity, and the ability to trim at least 0.75 percent from their interest rate by refinancing into a 30-year fixed mortgage.)

 

Lawrence Yun, chief economist for the National Association of Realtors, predicted in late April that rates would stabilize at about 5.5 percent, given that the market has already factored in possible future Fed rate hikes.

 

Not all refinances are for a rate or term reduction. Many borrowers have record-high levels of equity built up during the historic increase in home prices during the pandemic. For them, a cash-out refinance is a way to tap into that equity to invest in other properties.

 

In fact, in early 2021, cash-out refinances made up about 14 percent of all loan originations, said CoreLogic Principal Economist Molly Boesel in a recent podcast. As of April 2022, they were about 25 percent.

Other incentives for refinancing

Investors who own several properties may be excellent candidates for refinancing in the current environment.

 

“There can be portfolio restructuring, especially for investors who own between 5 and 10 properties,” says Dennis Bron, Mynd’s VP of Growth. “It might make sense for them to refinance some of those properties with portfolio loans so that they can continue to buy with conforming loans.

 

“They could take out a second lien mortgage to fund improvements, and then refinance that back into the loan with a new appraisal.”

 

Those whose financial position has improved may find it worthwhile to refinance to a loan with a shorter term.

 

“If you’re in a home that you’ve owned for a while, and your cash flow has increased and you have a ton of equity, it might make sense to refinance to a 15-year loan if you are in a position to pay it off more quickly,” says Bron.

 

Moreover, if mortgage rates are lower than inflation, there’s still a benefit to borrowing money, because when the borrower pays back the loan, the money paid back decreases in value over the life of the loan as inflation persists.

A cash-out refinance allows investors to expand portfolios

Black Knight estimates that the average homeowner with a mortgage has gained $67,000 in equity since the beginning of the pandemic. This is cash they could access while still retaining 20 percent of the equity in their homes, which is what lenders usually require.

 

The Federal Reserve estimates that during the pandemic, Americans who own their homes have gained more than $6 trillion in housing wealth. (That estimate doesn’t count equity in rental properties.)

 

High home values paired with relatively low mortgage rates offers investors the opportunity to draw on the increased value of their homes to expand their portfolios or to make improvements to properties they already own.

For many, a cash-out refinance makes sense.

 

“They might be willing to pay today’s higher rate, because the cash flow scenario still makes sense,” says Jack Snow, the mortgage program manager at Mynd.

 

“A lot of clients are letting go of the low interest rates they have to get cash out refinances because of the opportunities that exist,” says Aaron Dounel, a mortgage loan officer with Mynd. “They’re taking on a higher rate, but they’re buying in areas that are going to boom. They’re earning rental income today, and the equity will start building tomorrow.”

 

The principle of a cash-out refinance is simple: an investor with a loan on a property takes out a new loan of a higher amount, pays off the existing loan, and walks away with the balance as cash.

 

The investor can use those funds to improve a property, for example by making an addition onto a home, adding an accessory dwelling unit, finishing a basement and renting it separately, upgrading an HVAC system, or replacing aging cabinets and floors.

 

These improvements can lead to higher rents and improve the home’s resale value.

 

An entrepreneurial investor could use the cash to expand a portfolio by making a down payment on a new property.

Refinances don’t grow on trees

But there are hurdles to obtaining these loans.

 

First, it’s harder to qualify. The investor has to have more than 25 percent in home equity as well as good credit, typically a score of 680 or higher, but preferably 740 or above. A borrower usually has to have cash reserves, generally up to a year’s worth of the payments, on the property being refinanced.

 

Plus, if there are loan balances on properties apart from a primary residence and the property being refinanced, reserves equal to up to six percent of the unpaid balance are required. Finally, there’s a waiting period of six months to refinance after the initial loan closes.

 

To determine borrowers’ eligibility, lenders use the “loan-to-value” ratio, or LTV, which is determined by the size of the loan as compared to the value of the home.

 

If an investor is carrying a mortgage of $90,000 on a home that is worth $100,000, for example, the LTV is 90 percent, because the loan makes up 90 percent of the value.

 

Fannie Mae and Freddie Mac’s guidelines stipulate 70 to 75 percent LTVs. These may be too stringent for some investors seeking a cash-out refinance. Some lenders have more lenient standards, especially after the agency that regulates them placed a tighter cap on the number of investment home mortgages they can purchase.

 

This article originally appeared on Mynd.co and was syndicated by MediaFeed.org.

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Here’s where US foreclosure rates are soaring

 

Editor’s Note: Updated for May 2022

 

The number of U.S. properties with foreclosure filings in April was 30,674, according to ATTOM Data Solutions. This is up close to 160% from a year ago and makes April the 12th consecutive month showing year-over-year U.S. foreclosure activity increases. The Biden administration’s final extension of the pandemic-related moratorium on foreclosures ended July 31, 2021. The extension of the evictions moratorium for foreclosed borrowers ended September 30, 2021.

 

It is also worth noting that foreclosure filings decreased by close to 8% from March to April. The experts at ATTOM say this may be due to record levels of homeowner equity and the current hot housing market, allowing distressed homeowners the chance to sell their homes before going into final foreclosure. However, they say it may take a few months to see if this is what is happening.

 

According to ATTOM, year-over-year foreclosure increases will likely continue for the rest of 2022; however, they still expect foreclosures to stay below historic levels at least through the end of the year. Read on for the foreclosure rates in April 2022 – plus the five counties with the highest rates within those states.

 

Related: The safest cities in the US

 

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As just noted, foreclosures are up from last month, and up even more significantly compared to last year. Read on for April foreclosure rates for all 50 states — plus the District of Columbia — beginning with the state that had the lowest rate of foreclosure filings per housing unit.

 

 

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Ranking in population between Vermont and Alaska, the country’s 49th and 48th least populated states, Washington, D.C. had 10 foreclosures in April. With a total of 350,364 housing units, Washington, D.C.’s foreclosure rate was one in every 35,036 households, putting it in between the states of Kansas (#48) and North Dakota (#47).

 

 

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South Dakota once again nabbed the 50th spot; it had six homes go into foreclosure in April. Having 389,921 total housing units, the fifth least populated state had a foreclosure rate of one in every 64,987 households. Only three counties saw foreclosures in April. The counties with the most foreclosures per housing unit were (from highest to lowest): Lawrence, Minnehaha, and Lincoln.

 

 

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In 49th place for population, Vermont claimed the 49th spot for its foreclosure rate. Of Vermont’s 334,318 housing units, seven homes went into foreclosure for a rate of one in every 47,760 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Orange, Franklin, Windham, Washington, and Rutland.

 

 

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Kansas took the 48th spot. With 1,275,689 homes and a total of 35 housing units going into foreclosure, the 35th most-populated state’s foreclosure rate was one in every 36,448 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Geary, Leavenworth, Seward, Shawnee, and Miami.

 

 

Michael Pham

 

North Dakota’s foreclosure rate was one in every 33,695 homes. That puts the fourth least populated state – with a total of 370,642 housing units, of which 11 were in foreclosure — in 47th place. The counties with the most foreclosures per housing unit were (from highest to lowest): Morton, Stark, Ward, Cass, and Williams.

 

 

 

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The 44th most populated state ranked 46th once again for foreclosure rate. With 18 foreclosures out of 514,803 housing units, its foreclosure rate was one in every 28,600 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Chouteau, Broadwater, Rosebud, Yellowstone, and Lewis And Clark.

 

 

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The 39th most populated state, West Virginia, ranked 45th. It has 855,635 homes, of which 56 went into foreclosure. That means the foreclosure rate was one in every 15,279 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Tyler, Lewis, Fayette, Boone, and Cabell.

 

 

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The 27th most populated state ranked 44th for highest foreclosure rate. Of Oregon’s 1,813,747 homes, 130 went into foreclosure, making for a foreclosure rate of one in every 13,952 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Morrow, Polk, Klamath, Washington, and Multnomah.

 

 

HaizhanZheng

 

With a total 1,994,323 housing units, Kentucky saw 148 homes go into foreclosure. That put the foreclosure rate for the 26th most populated state at one in every 13,475 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Martin, Grant, Washington, Lincoln, and Webster.

 

 

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Ranked 13th for most populated state, Washington came in 42nd place for highest foreclosure rate. It has 320,2241 housing units, of which 251 went into foreclosure, making the state’s foreclosure rate one in every 12,758 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Douglas, Chelan, Okanogan, Skamania, and Grays Harbor.

 

 

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Ranked 33rd for most populated state, Arkansas took the 41st spot for highest foreclosure rate. It has 1,365,265 housing units, of which 122 went into foreclosure, making the state’s latest foreclosure rate one in every 11,191 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Woodruff, Lincoln, Ashley, Grant, and Mississippi.

 

Recommended: Tips on Buying a Foreclosed Home

 

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Ranked the least populated in the country, Wyoming claimed the 40th spot for highest foreclosure rate. With 271,887 housing units, of which 26 went into foreclosure, the state’s foreclosure rate was one in every 10,457 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Crook, Carbon, Campbell, Sublette, and Big Horn.

 

 

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In Tennessee, the 16th most populated state, there were 291 foreclosures out of 3,031,605 housing units. That put the foreclosure rate at one in every 10,418 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Wayne, Hardeman, Bledsoe, Humphreys, and White.

 

 

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The eighth least populated state took the 38th spot for highest foreclosure rate. A total of 51 homes went into foreclosure out of 483,474 total housing units, making the foreclosure rate for the Ocean State one in every 9,480 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Providence, Bristol, Newport, Washington, and Kent.

 

 

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The 40th most populated state, Hawaii came in 37th for highest foreclosure rate. Of 561,066 homes, 61 went into foreclosure, making for a foreclosure rate of one in every 9,198 households. Only three counties in the state had foreclosures. They were (from highest to lowest): Hawaii, Maui, and Honolulu.

 

 

Art Wager

 

The 41st most populated state, New Hampshire ranked 36th for highest foreclosure rate. Of 638,795 homes, 70 went into foreclosure, making for a foreclosure rate of one in every 9,126 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Cheshire, Sullivan, Grafton, Rockingham, and Strafford.

 

 

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Utah placed 35th for highest foreclosure rate. Of the Beehive State’s 1,151,414 housing units, 135 homes went into foreclosure, making the 30th most-populated state’s foreclosure rate one in every 8,529 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Sevier, Tooele, Morgan, Box Elder, and Emery.

 

 

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Alaska saw 38 foreclosures, making the foreclosure rate one in every 8,356 homes. That caused the third least populated state, with a total of 317,524 housing units, to take the 34th spot. Only four counties saw foreclosures in April (from highest to lowest): Anchorage, Matanuska-Susitna, Fairbanks North Star, and Kenai Peninsula.

 

 

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The 38th most populated state, Idaho had 91 homes go into foreclosure. With 751,859 total housing units, the state’s foreclosure rate was one in every 8,262 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Lewis, Lincoln, Oneida, Benewah, and Shoshone.

 

 

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Ranked 18th for most populated state, Maryland took 32nd place for highest foreclosure rate. With a total of 2,530,844 housing units, of which 322 housing units went into foreclosure, the state’s foreclosure rate was one in every 7,860 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Prince George’s County, Charles, Garrett, Baltimore City, and Calvert.

 

 

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With 392 foreclosures out of 2,727,726 total housing units, Wisconsin, the 20th most populated state, had a foreclosure rate of one in every 6,958 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Marquette, Kenosha, Douglas, Dodge, and Langlade.

 

Recommended: What Is a Short Sale?

 

FierceAbin

 

Ranked 37th for population, Nebraska claimed the 30th spot with a foreclosure rate of one in every 6,920 homes. With a total 844,278 housing units, the state had 122 foreclosure filings. The counties with the most foreclosures per housing unit were (from highest to lowest): Knox, Madison, Jefferson, Cedar, and Lancaster.

 

 

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The 15th most populated state ranked 29th for highest foreclosure rate. Of Massachusetts’ 2,998,537 housing units, 446 went into foreclosure, making for a foreclosure rate of one in every 6,723 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Plymouth, Hampden, Franklin, Berkshire, and Worcester.

 

 

 

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With 1,268 out of a total 8,488,066 housing units going into foreclosure, the fourth most populated state took the 28th spot. New York’s foreclosure rate was one in every 6,694 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Genesee, Suffolk, Washington, Montgomery, and Tioga.

 

 

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The 36th most populated state took the 27th spot for highest foreclosure rate. Of its 940,859 homes, 141 went into foreclosure, making for a foreclosure rate of one in every 6,673 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Chaves, Cibola, Eddy, Valencia, and Torrance.

 

 

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The 19th most populated state, Missouri came in 26th for highest rate of foreclosures. Of its 2,786,621 homes, 443 went into foreclosure, making for a foreclosure rate of one in every 6,290 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Jefferson, New Madrid, Webster, Butler, and Gasconade.

 

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The 12th most populated state ranked 25th for highest foreclosure rate, with 581 homes going into foreclosure. Having 3,618,247 total housing units, the state saw a foreclosure rate of one in every 6,228 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Nottoway, Portsmouth City, Essex, Warren, and Greene.

 

 

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In Mississippi, the 34th most populated state, there were 213 foreclosures out of 1,319,945 housing units. That put the foreclosure rate at one in every 6,197 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Sharkey, Stone, Claiborne, Benton, and Adams.

 

 

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Ranked 25th for population, Louisiana took the 23rd spot, with 338 homes out of a total of 2,073,200 housing units going into foreclosure. That means Louisiana had a foreclosure rate of one in every 6,134 households. The counties with the most foreclosures per housing unit were (from highest to lowest): West Baton Rouge, Iberville, Beauregard, Tangipahoa, and Richland.

 

 

DenisTangneyJr

 

Ranked as the ninth least populated state, Maine placed 22nd for highest foreclosure rate. With a total of 739,072 housing units, the Pine Tree State saw 126 foreclosures for a foreclosure rate of one in every 5,866 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Waldo, Aroostook, Somerset, Penobscot, and Androscoggin.

 

 

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Ranked 24th for most populated, Alabama came in 21st for highest foreclosure rate. Of its 2,288,330 homes, 391 went into foreclosure, making for a foreclosure rate of one in every 5,853 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Dale, Barbour, Montgomery, Covington, and Conecuh.

 

Recommended: 4 Signs You May Be Ready to Buy

 

 

James Deitsch

 

Pennsylvania has the 20th highest foreclosure rate. The fifth most populated state had a total of 1,120 housing units out of 5,742,828 homes go into foreclosure, making the state’s foreclosure rate one in every 5,128 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Potter, Delaware, Philadelphia, Bucks, and Pike.

 

 

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The Lone Star State saw 2,297 foreclosures. With a foreclosure rate of one in every 5,045 households, this put the second most populous state with 11,589,324 housing units into the 19th spot – the same ranking it held in March. The counties with the most foreclosures per housing unit were (from highest to lowest): Dickens, Ector, Collingsworth, Shackelford, and Nacogdoches.

 

 

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In Arizona, the 14th most populated state, there were 614 foreclosures out of 3,082,000 housing units. That put the foreclosure rate at one in every 5,020 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Graham, Yavapai, Cochise, Pinal, and Greenlee.

 

 

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The ninth most populated state took 12th place for highest foreclosure rate. Out of 4,708,710 homes, 967 went into foreclosure. That put the Tar Heel State’s foreclosure rate at one in every 4,869 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Gates, Washington, Polk, Cumberland, and Hoke.

 

 

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Ranking 10th for population, Michigan took the 16th spot with a foreclosure rate of one in every 4,771 homes. With a total of 4,570,173 housing units, the state had 958 foreclosure filings. The counties with the most foreclosures per housing unit were (from highest to lowest): Saint Joseph, Genesee, Macomb, Schoolcraft, and Shiawassee.

 

 

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Oklahoma claimed the ninth spot. With housing units totaling 1,746,807, the 28th most populated state saw 380 homes go into foreclosure at a rate of one in every 4,597 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Washita, Canadian, Craig, Love, and Garfield.

 

 

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The eighth most populated state, Georgia ranked 14th for highest foreclosure rate. Of its 4,410,956 homes, 1,004 were foreclosed on. That put the state’s foreclosure rate at one in every 4,393 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Candler, Crawford, Polk, Baker, and Peach.

 

 

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Ranked 22nd for most populated state, Minnesota took the 13th spot for highest foreclosure rate. It has 2,485,558 housing units, of which 568 went into foreclosure, making the state’s foreclosure rate one in every 4,376 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Grant, Faribault, Mower, Clay, and Isanti.

 

 

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The most populated state ranked 12th for highest foreclosure rate. Of its 14,392,140 housing units, 3,465 went into foreclosure, making California’s foreclosure rate one in every 4,154 households. The counties with the most foreclosures per housing unit were (from highest to lowest): Lake, Siskiyou, Kern, Trinity, and Madera.

 

 

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With 377 of its 1,530,197 homes going into foreclosure, Connecticut had the 11th highest foreclosure rate of one in every 4,059 households. In the 29th most populated state, the counties that had the most foreclosures per housing unit were (from highest to lowest): Windham, Middlesex, New Haven, Hartford, and Litchfield.

 

Recommended: Your 2022 Guide to All Things Home

 

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Iowa had the tenth highest foreclosure rate. With 353 housing units out of 1,412,789 homes going into foreclosure, the 31st most populated state’s foreclosure rate was one in every 4,002 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Fremont, Cass, Winnebago, Wapello, and Tama.

 

 

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The third most populated state in the country has a total of 9,865,350 housing units, of which 2,906 went into foreclosure. The state’s ninth highest foreclosure rate is one in every 3,395 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Hamilton, Calhoun, Taylor, Gilchrist, and Union.

 

 

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The sixth least populated state in the country, Delaware ranked fourth for highest foreclosure rate. With one in every 3,138 homes going into foreclosure and a total 448,735 housing units, Delaware saw a total of 143 foreclosure filings. With only three counties in the state, the most foreclosures per housing unit were in (from highest to lowest): Kent, New Castle, and Sussex.

 

 

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With one in every 3,085 homes going into foreclosure, South Carolina moved out of the top three to take the seventh spot. Ranked 23rd for population, South Carolina has 2,344,963 housing units and saw 760 foreclosure filings. The counties with the most foreclosures per housing unit were (from highest to lowest): Barnwell, Lexington, Dorchester, Marion, and Darlington.

 

 

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The 21st most populated state ranked 6th for highest foreclosure rate. Of Colorado’s 2,491,404 housing units, 812 went into foreclosure, making for a foreclosure rate of one in every 3,068 homes. The counties with the most foreclosures per housing unit were (from highest to lowest): Pueblo, Delta, Mesa, Weld, and Morgan.

 

 

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Ranking 32nd in population, Nevada took the fifth spot for foreclosure rate. With one in every 3,043 homes going into foreclosure and a total of 1,281,018 housing units, the state had 421 foreclosure filings. The counties with the most foreclosures per housing unit were (from highest to lowest):Clark, Nye, Washoe, Elko, and Lyon.

 

 

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The 17th largest state by population, Indiana took the fourth spot with a foreclosure rate of one in every 2,660 homes. Of its 2,923,175 homes, 1,099 homes were foreclosed on in April. The counties with the most foreclosures per housing unit were (from highest to lowest): Noble, Grant, Clinton, Lake, and Elkhart.

 

 

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Ohio claimed the third spot, with a foreclosure rate of one in every 2,585 homes. With a total of 5,242,524 housing units, the seventh most populated state had a total of 2,028 filings. The counties with the most foreclosures per housing unit were (from highest to lowest): Cuyahoga, Huron, Muskingum, Logan, and Greene.

 

 

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With a foreclosure rate of one in every 2,292 homes, New Jersey held on to second place. The 11th most populated state has 3,761,229 housing units, of which 1,641 went into foreclosure. The counties with the most foreclosures per housing unit were (from highest to lowest): Cumberland, Salem, Warren, Camden, and Gloucester.

 

 

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Illinois took the number one spot again in April. Of its 5,426,429 homes, 2,421 went into foreclosure, making the sixth most populated state’s foreclosure rate one in every 2,241. The counties with the most foreclosures per housing unit were (from highest to lowest): Will, Madison, Lee, Tazewell, and Mchenry.

 

 

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Of all 50 states, California had the most foreclosure filings (3,465); South Dakota had the least (6). As for the states with the highest foreclosure rates, Illinois, New Jersey, and Ohio took the top three spots, respectively.

 

The Great Lakes region had the largest presence among the 10 states that ranked the highest for foreclosure rates. These states were (from highest to lowest): Illinois, Ohio, and Indiana.

 

The Plains region and the Southeast region tied for the largest presence among the 10 states that ranked the lowest for foreclosure rates. The states in the Plains region were (from highest to lowest): North Dakota, Kansas, and South Dakota. The states in the Southeast region were (from highest to lowest): Arkansas, Kentucky, and West Virginia.

 

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This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.

 

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