Bank-owned, also known as real-estate owned (REO), homes are popular with buyers seeking low-priced properties. Buying a bank-owned home is a process similar to purchasing any other home, with the primary differences being the contracts and paperwork used by the bank and the reluctance of many banks to finance any repairs on the home. Arming yourself with knowledge of the process of buying a bank-owned home may lead to a smoother transaction with fewer surprises.
Consider Using a Real Estate Agent
Most bank-owned homes are listed through real estate brokers or agents for sale, just as any other home might be. Working with a buyers' agent who will represent your interests in the transaction may save you time and money. The Federal Citizen Information Center (FCIC) recommends choosing a real estate agent who is experienced in foreclosure purchases.
Know Your Market
Become familiar with housing prices in the neighborhoods where you may consider purchasing a bank-owned home. A real estate agent can also provide data on recent and pending sales in the area. Information is available to the public on county websites about recent sales. Knowing the market allows you to know when a bank-owned home is true bargain.
Conduct a Pre-Inspection
Most banks list REO homes for sale as-is and at a lower price to compensate for potential repair costs. This does not prevent a buyer from asking for a credit for repairs or assistance fixing any work that may be a health or safety hazard. Consider having a professional inspection on the home prior to writing an offer. This eliminates surprises once you are under contract with the bank and allows you to budget for necessary maintenance work once the sale closes. Inspections are typically performed once the home is under contract, but many banks will allow a pre-inspection.
Get Pre-Approved for a Mortgage
Even if a bank-owned home is a steal, buyers should know their financial limits and stay within their means. Talk to a mortgage representative and provide the necessary paperwork to learn about down payment requirements and monthly payment predictions. Your real estate agent, friends or family members should be able to refer you to a reputable company. Many banks require a pre-approval letter before considering a buyer's offer to purchase a home.
Look Past the Damage
Since bank-owned homes are recent foreclosures, many have extensive damage from frustrated homeowners who fell behind on their payments. From missing appliances to dry wall holes to overwhelming pet odors, be prepared to see homes in every condition imaginable. The key as a buyer is to look past the damage and determine whether the potential for the home and surrounding neighborhood outweigh the necessary repairs.
Understand the Contract
Your real estate agent can assist you with writing an offer and submitting it to the bank for consideration. Most lenders will respond to the initial offer with their own version of a purchase and sale agreement that may differ greatly from the forms submitted by your agent. Consider having an attorney review the paperwork and advise you on proceed.
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