If you are looking to buy a new home, you may have noticed some bank-owned home available at low prices. Here is some advice for finding the home of your dreams at a price you will love.
What is bank-owned real estate?
Bank-owned real estate, also known as real estate-owned or REO property, is housing that has been foreclosed by the mortgage holder. Because banks want cash, not real estate, it is often available for a steal.
There are multiple methods for locating REO properties.
- MLS, also known as the Multiple Listing Service. MLS is the national database that real estate agents use to locate properties. It has a section devoted to bank-owned properties.
- Subscription foreclosure databases like RealtyTrac and HUDHomesUSA keep up with foreclosures that banks and other lenders offer for sale. You pay a fee to use their service.
- Fannie Mae’s HomePath lists foreclosed Fannie Mae homes up for auction. There is a similar service for Freddie Mac.
- REO agents. Some real estate agents specialize in foreclosures. Ask your agent if they do.
- Real estate portals such as Trulia, Zillow, and Redfin list foreclosures alongside other properties.
- Bank websites. Banks often list the properties on which they have foreclosed on their websites.
- Smaller lenders. Smaller lenders are often especially eager to unload REO properties.
- Your investor network. Other real estate investors, like Patrick Carroll, may have leads on suitable property for you.
Your first step in buying an REO property is to get pre-approved financing. Lenders want to get rid of REO ASAP, so you will need to resolve any questions about your ability to get a mortgage before you start your home search.
If you are paying in cash, get a Proof of Funds letter from your bank.
Consider hiring a buyer’s agent. You will pay a commission, but a buyer’s agent can save time and hassle. The best buyer’s agent has experience buying foreclosed properties.
Make an offer. Don’t try to lowball the bank. They will just move on to the next prospective buyer. Once the bank has accepted your offer, you will probably need to put 1 to 2% of the price in earnest money to seal the deal.
Get a home inspection. These properties as often sold as is, meaning any repairs are on you. You do not want to delay this step, along with making needed repairs, because your contract probably has a penalty for every day closing is delayed beyond a fixed date.
Perform a title search. You do not want to discover a lien against your home that the bank is not aware of. The most common problem will be liens for property taxes, which will be listed in public records.
REO property can be a great way to get a new home for your family. Just do your due diligence to be sure you get a house with a minimum of fixup and legal hassles for the best deal.
