The housing crisis led to an increased number of bank-owned homes on the market. If you are interested in purchasing one of these homes, it is important to fully understand what they entail and what additional steps might be necessary and what details you should pay more attention to.
What is a bank-owned home?
Bank-owned homes, also referred to as real estate-owned or REO, are properties that have been through the foreclosure process. These homes are now owned by the original mortgage lender and are often more affordable.
Zillow suggests that you should be particularly aware that there may be severe damages to REO homes and they are typically sold in their current condition. When purchasing a bank-owned home, you assume the responsibility to tend to all repairs.
How do I find bank-owned homes?
Homes that have been repossessed by the bank may be found at foreclosure auctions. Additionally, you can speak with your real estate agent about your interest in an REO property and they can help you find various properties in the area.
What does the buying process for REO homes entail?
The process for purchasing REO homes is more time-consuming than the typical homebuying procedure. However, there are similarities between both ways of acquiring a home. Freddie Mac outlines three primary steps that you will go through when purchasing a home that has been repossessed.
You will need to first get approved for a mortgage. This indicates you are a serious buyer while helping you figure out how much money you will be able to spend on a new home.
When you have been approved, find a real estate professional that has experience dealing with this particular brand of real estate. His or her knowledge should also be broad enough to encompass short sales as well. If you are unsure about whether to hire a real estate agent, remember that they can help you navigate through the process and determine fair pricing of any REO real estate you find interest in.
The final step of this process is making an offer. Remember that a home inspection is especially important when looking to purchase REO real estate. If there are a number of damages that require repairs, The U.S. Department of Housing and Urban Development notes that you may apply for FHA's 203(k) Rehabilitation Loan. This particular loan will allow a potential homeowner to both purchase and renovate newly acquired property with one mortgage.
It should also be noted that since multiple eyes will be looking at the offers, hearing back about whether your offer is accepted might take longer than a typical home sale. Patience is essential when considering REO homes.
What is the importance of a home inspection when moving forward with a purchase?
Home inspections are a vital part of purchasing a bank-owned home. This is mainly due to the fact that these houses are sold in the condition that they are currently in. If there is an issue with the plumbing, the new buyer will inherit those plumbing issues. Hire a professional to investigate and appraise the value of the home.
What does a home inspection consist of?
Home inspections are done by a professional individual that can offer an educated and objective opinion regarding the state of a house. According to the American Society of Home Inspectors, a home inspection typically checks out the condition of everything at the basement level, as well as utilities, walls, insulation, ceilings, floors, windows, roof and doors. If there is an attic, this space is also inspected.
These thoroughly conducted inspections will ensure that a potential buyer knows and understands the risks of attaining the house that they are interested in purchasing. It is smart to always have a home inspection, but especially crucial when looking at bank-owned homes.
If problems do arise, ASHI notes that these results should not necessarily deter you from moving forward with the purchase of that particular house. No property is flawless. It is just important to be aware of issues that may be present or potentially become an expense in the future.
If you know that the water heater is on its last leg, but all other utilities have just recently been updated, you might be willing to move forward with the investment knowing that only replacing your water heater is in the cards.
However, if you determine that the expenses that you will be forced to take on if you choose to buy are too much, then you should not make the investment. A home inspection helps you determine whether or not buying certain real estate is a good fit for the budget you have already established.
Homes that have been foreclosed on can offer the opportunity for better affordability. If you choose to search through the inventory of REO real estate, remember that a real estate agent with vast experience and a solid home inspection are two key components to moving forward in this process.