As a residential specialist, I hear these questions all the time: “Can you help me buy a foreclosure?” “What about a bank owned home?” “I saw on Zillow that this house is a pre-foreclosure. Can I buy it?”
Honestly, any agent can help you buy a bank owned home, but an experienced REO (i.e., real estate owned, or foreclosure) agent can make a huge difference in the process and in your costs. Some of this may sound scary, but with the right agent, it’s not so bad. Let’s start with the basics.
Financing – How are you going to pay for your home? All bank owned homes require some type of proof for how you plan to make the purchase, and rent-to-own or contract sales aren’t an option. If you plan to use cash, you’ll need documentation from your bank. If you are seeking a mortgage, there are other issues to consider.
Type of Loan – Conventional, USDA, VA, FHA … there’s a whole alphabet soup of possible loans. But not all properties qualify for all loans. Speak with your agent and lender to determine your options. This will help you find houses that fit your loan. Veterans Affairs (VA), rural area (USDA) and Federal Housing Administration (FHA) loans are pretty strict on guidelines for a home’s condition, and they may not cover renovations. Situations can also vary depending on which bank owns the home. There are some rehab loans available (best discussed with your lender and agent).
Finding Your Home – As for bank owned houses, your agent can provide you with a list, or you can find these properties on your agent’s company website, or sometimes through other large real estate sites. And no matter what you’ve heard, you don’t need to pay for a list. There is no secret list of bank owned homes out there.
Showings – Going to check out these homes can be a fun adventure! You never know what you’re going to find. The downside is sometimes it’s gross. Avoid bringing small children or your extended family with you. I’ve been in houses with mold, bad floors, holes in closets that led to the basement, missing steps in staircases and more. You get the picture.
This is also the time to be brutally honest. We’re not all like Chip or Joanna on HGTV. Some properties need everything removed, some not as much. Rarely do you see a house that just needs paint and deep cleaning. Almost all need some major work — usually with the windows, roof, flooring and/or plumbing.
Inspections – With any property inspection, expect some surprises. There are times when an inspection isn’t necessary (if you are planning to gut the house and start from scratch, or even bulldoze it, for example). Otherwise, conduct the inspection once your offer is accepted so you can discover any concerns and determine if you want to move forward. Inspections occurring prior to an accepted offer can get expensive. Also, most contracts have a kick out clause for inspections, so discuss this with your agent.
Final Walk-through – Right before closing, it’s a great idea to do a final walk-through of the home to make sure no major changes have happened.
Closing – The seller will not typically be present at the closing, which is usually the time you will be given your keys. However, some bank owned properties use master keys for all of their homes, in which case you’ll need to change the locks.
Congratulations! You have successfully purchased your first bank owned home!