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What You Need to Know About Bank-Owned Homes

What You Need to Know About Bank-Owned Homes

As we navigate the dynamic landscape of the 2024 real estate market, one thing to consider is the presence of bank-owned homes, known as real estate-owned (REO) properties. While not as prevalent today, these properties still represent a modest piece of the market. With numbers hovering around 14,000 to 15,000 throughout various parts of the year, REO homes offer unique opportunities for those in the housing market.

If you're considering the purchase of a REO property, it's important to understand their differences. Knowing the steps involved and recognizing the importance of a thorough inspection are key. To make a well-informed decision, use our Home Affordability Calculator. This tool will help you gauge your budget and embark on this special homebuying journey confidently and clearly.

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 that 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?

Today's savvy home shoppers can discover REO properties through a variety of channels. Bank-owned homes are listed on Multiple Listing Service (MLS) databases, bank websites, and specialized platforms like, Hubzu, and RealtyTrac, making the search more accessible than ever. 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 type of real estate. Their 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.

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