How to Buy Foreclosed and Bank-Owned Homes

Table of Content

• How to Buy Foreclosed Homes from Banks and Why They Are So Great
• HomeSteps
• How to Buy Bank-Owned Foreclosed Homes
• How do I get started if I want to consider a bank-owned home purchase?
• Faster, easier mortgage lending
• Step 3: Find a Real Estate Buyer’s Agent Who Knows REO Homes
• Purchasing a Foreclosed Home

A decree of foreclosure and sale is a statement issued by a court indicating that a piece of property is to be sold when a mortgage has gone into default. A zombie title is a title that remains with a homeowner who believes they have lost the property to foreclosure. A sheriff’s sale is a public auction of property that has been repossessed and is being sold by court order in order to satisfy debts that are in default. The more basic version, a streamlined 203 loan, is meant for limited repairs that don’t require engineering or architectural plans.

Having these experts weigh in will help you determine the approximate value of the home after repairs. A mortgage holder in default may also opt for a deed in lieu of foreclosure, which means they transfer ownership of the property directly to the lender in order to avoid foreclosure proceedings. Carla Toebe is a licensed Real Estate Broker in Richland, Washington. She has been an active real estate broker since 2005, and founded the real estate agency CT Realty LLC in 2013. She graduated from Washington State University with a BA in Business Administration and Management Information Systems.

How to Buy Foreclosed Homes from Banks and Why They Are So Great

Auction listings often state that the home is offered for sale as-is with no contingencies. While you can work directly with the bank to buy the home, you might get a better deal by using a buyer’s agent who represents only your interests. As the seller, the bank will be responsible for the agent’s commission. However, since the bank might have to pay your agent’s commission out of the sale proceeds, the bank may be less willing to lower its price.

Because banks are in the business of making money, they price their REOs pretty competitively with the wider market. On the one hand, properties that are discounted will most likely have condition issues, and may experience increased demand. Remember that the bank did not get its minimum bid for the property at auction, so it will most likely dip even lower in order to sell the property quickly. It's common for bank-owned foreclosed homes to be sold in "as-in" condition.

HomeSteps

Before you start looking at foreclosed homes, you will need to determine how much home you can comfortably afford. You will want to make sure the costs for your mortgage, property taxes and insurance are typically no more than 36% of your income before taxes and other deductions. As with a typical real estate transaction, out-of-pocket expenses can occur before and after an offer to purchase a property has been submitted. These out-of-pocket expenses may include lender required documentation such as an appraisal or home inspection and bank-required minimum earnest money. Earnest money is a “good faith” deposit demonstrating the buyer’s interest in the property and may be an indicator of how much money will be deposited as a down payment. You don’t need your own agent to buy REO property, but it might save you some time and stress to have someone negotiating with banks on your behalf.

In the foreclosure market, your real estate agent does not have to contract with other buyers' agents in order to look at the home. This means that your agent can show you multiple homes at the same time. With all this being said, foreclosed homes can wind up being incredible deals. Buyers have the unique opportunity to pay below market value for homes that wouldn’t be available to them under normal circumstances. If there are savings on the acquisition side, it improves the likelihood of the buyer realizingappreciation of their asset, as well as investment gains if they sell in the future.

How to Buy Bank-Owned Foreclosed Homes

The reason for this is that auction mentality can sometimes take over. The investment property price can keep going higher as bidders raise it in competition. Real estate investors who approach auctions in this competitive, emotional way end up overpaying for the investment property. You can work directly with the bank to purchase a foreclosed home if you want. This eliminates the real estate agent and any commission he would earn from the sale.

An appraisal will help you get an objective estimated value, which you can compare to the bank’s asking price to see if the price is fair. During the appraisal, a licensed appraiser will take inventory of major systems (i.e., HVAC, plumbing), the structural integrity of the home, and check the prices of comparable homes in the area. The lender initiates legal proceedings against the borrower to foreclose on the property.

If the homeowner fails to catch up on their payments by the auction date, the home is auctioned for sale. The homeowner fails to make at least three consecutive months of mortgage payments. If the property you’re considering is in good condition, the fact that it’s an REO shouldn’t make it more difficult to qualify for a loan. Similarly, an REO property in decent shape should not be subject to a highermortgage rate. REOs are a significant part of the housing market and can be great deals for buyers, but there are some things you need to know before investing in one. Other issues that a title search might uncover include restrictions put on the property, such as covenants and easements.

The sheriff’s office isn’t interested in hanging onto a house, and banks don’t want to be in the landlord business. Financial institutions typically want to rid themselves of foreclosed properties promptly. They need to get a reasonable price; they have to answer to their investors and auditors. Many foreclosed properties sit on the market like other owned properties, but some are sold at an in-person auction.

Prospective buyers might consider submitting bids on several properties at once in hopes that one pans out. While you’d think a bank would be eager to unload a repossessed residence, response times between the bank and other involved parties can be sluggish with REO properties. Whatever is owed, the government must be paid before the buying process can proceed. In short, these sellers aren’t negotiating from a position of strength and, while it may seem cruel to take advantage of their misfortune, a buyer can benefit.

For you, “foreclosure” can mean different things as the process moves through three different stages. Programs, rates, terms and conditions are subject to change without notice. Digital Mortgage Experience™ you can prequalify or refinance online. Buyers are allowed and encouraged to complete professional home inspections on the property. Homes that cannot be first inspected have a likelihood of needing extensive repair. The moratorium on foreclosures due to the COVID-19 pandemic ended on July 31, 2021.

Faster, easier mortgage lending

HUD. The U.S. Department of Housing and Urban DEvelopment -owned foreclosures are properties where a borrower stopped making payments on their Federal Housing Administration loan. There are many factors to consider when buying a foreclosed home compared to a traditional home purchase. REO properties are an affordable housing option, but there are also more things to watch for with this type of home purchase. Use this guide to better understand the steps involved in buying a foreclosed home and to increase your likelihood of success in finding one that is right for you. A home inspection is a crucial step when buying an REO property. These homes are sold as is, meaning you are responsible for any repairs needed.

A foreclosure auction offers some tempting bargains — but the buyer assumes all risk of anything going wrong with the title, condition or any other aspect of the property. It’s a big bet to make, and not for the faint of heart.Read more about buying at a foreclosure auction. The two common ways of buying a foreclosed home are through a real estate agent or through a public auction. Some potential homebuyers pass over foreclosures or buying a bank-owned home entirely because they are daunted by the special considerations that go into this kind of sale. Others might consider the same properties as slam-dunk bargains. Once you’ve found the right property, it’s time to make an offer to the lender.