The 411 On Buying Bank - Owned Properties (REO)

Successful buyers in this market are financially able, motivated, determined and ready to make a deal!  However, often times they are not clear about the buying process, educated on their options or armed with a solid buying criteria. Going into a real estate transaction without these things can turn a fulfilling experience into a disaster. 

Despite the all the myths surrounding bank-owned properties, they are a great investments!  Here are a few reasons why:

1. Prices are low - Recent research shows that consumers are purchasing foreclosures at a savings of up to 40% lower than the price of a similar home in a normal sale.

2. Mortgage Rates - Mortgage rates remain near historic lows which significantly reduces your monthly payment.  Plus, most lenders are offering all-in-one loans that combine your home loan with a rehab loan so that you can make any necessary repairs prior to move-in.
3. Banks are motivated - Banks are not in the business of selling real estate!  Once they have repossessed a property they do not want to keep it, they want to sell it fast.  That is why you notice such deep discounts with foreclosure properties.

Dealing with foreclosures requires that you have a sense of urgency.  These buying opportunities won’t last forever.  So I want you to keep a few things in mind:

1. Banks and the government are trying to slow the rate of foreclosures by offering homeowner’s loan modification programs.
2. The impact of adjustable rate mortgages will continue to decline thus resulting in fewer foreclosures on the market.
3. Mortgage rates for qualified buyer are at an all time low….How much longer will this last?
4. Lastly, the number of buyers are increasing!  Foreclosure opportunities are gaining more and more attention everyday!

So put on your game face and lets get you to the winning side of foreclosures!

Step 1 - Buyers’ To Do List

1. Find a Realtor to represent you during this transaction.  Don’t be afraid to interview several Realtors’ to ensure that this union will be a perfect fit.  Remember…you will be spending a lot of time with this person and you want to make sure you have a meeting of the minds.
2. Get prepared financially.  Get pre-approved by a reputable lender.  FYI…once you are pre-approved do not make any changes to your financial profile.  For example, do not switch jobs, close credit card accounts or make late payments to creditors.  Each one of these items will modify your credit score and potentially change your pre-approval.
Since you are considering the purchase of a bank-owned property, ask your lender about the FHA Home Purchase and Renovation Program - 203(k).  This will help with repairs and there is a possibility for an energy efficiency add-on.
3. Establish your home search criteria.  Remember, there is no such thing as the “PERFECT” home…unless you are custom building one.  So make a list of your “Must Haves” and the things that you can compromise on.  This will help you look at each home with renewed eyes and hopefully prevent you from missing out on a great home for you and your family.
4. Keep in mind that bank-owned properties are already priced below market value.  Make reasonable offers without low balling.
5. Read all offers, counter-offers and accepted contract terms thoroughly.  If you do not understand, keep asking questions until you clearly understand the commitment of both parties.  Your contract will be your road map to a successful closing.  Just play by the rules of your contract.
6. Have patience!  Nothing worth having comes easy!  Hopefully, the deep discounts and the instant equity will keep you focused during the course of this process.

Step 2 - Terms You Should Know:

1. Distressed Property - This term refers to all pre-foreclosures and foreclosed properties.
2. Notice of Default - The homeowner has missed one or more payment and gets a letter saying the lender will foreclose.  The time period from notice of default to foreclosure is called pre-foreclosure.
3. Short Sale - The lender agrees to settle for less than the full amount due on the homeowner’s mortgage.  This can happen anytime during pre-foreclosure.
4. Foreclosure - The process by which the lender takes the property from the homeowner for failure to pay.
5. Auction - Foreclosed property is normally offered at auction first.  Auctions are conducted by local government (city or county) or by an auction vendor.
6. Bank Owned or REO (Real Estate Owned) - Foreclosed property that is not sold at the auction and returns to the lender.  The lender will usually retain an asset manager who then lists the property with a real estate agent.

Don’t be afraid of the big, bad “Banks!”  Believe it or not they want you to buy their homes and you can successfully purchase a bank-owed property by being QUALIFIED, WELL-INFORMED, PATIENT AND ARMED WITH THE ADVISE OF A REAL ESTATE PROFESSIONAL. 

SO WHAT ARE YOU WAITING FOR? GET IN THE GAME AND GET YOUR DREAM HOME FOR LESS!!!!!!

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