What Are REO Properties?
The term REO means Real Estate Owned, which refers to any property that has gone through the foreclosure process and is now owned by the lender.
How does a property become an REO?
When a borrower can’t fulfill the obligations of their loan and falls behind on payments, the following can happen:
- If the borrower is over 90 days late on their payment, the lender can initiate foreclosure proceedings.
- Next, the home is foreclosed on and repossession of the property takes place. The property is now considered “bank owned.”
- Finally, bank REO properties are then listed for sale so that the bank can recoup their loss as quickly as possible.
Are REO homes sold at a discount?
Bank owned properties are often offered at a discount over a traditional property. REO foreclosure properties make great cheap investments for first time home buyers, property flippers or those who want to create a rental income. For example, due to a large inventory of properties, Chase REO homes are available at drastically reduced prices
Do I need cash to buy REO homes?
If you want to buy REO properties, having cash on hand is helpful, but it isn’t required. REO financing is available. Buying these homes can be done in multiple ways, either by paying in cash, paying only a down payment in cash or by financing through a private lender. Some lenders specialize in financing your purchase.
What conditions are REO homes in?
REO foreclosed homes may need some repairs or updating. In general, REO repair includes things like updating paint, carpet or appliances. Typically, these bank owned homes were in good repair but they may need some care to reach their full potential again. Home repair grants may be available when you buy a foreclosed home. REO homes are usually sold in “as-is” condition, so be prepared to do some repair work before your bank REO is ready for move-in.
Making an offer to buy an REO home
1. If you’ve found an REO property that you want to buy, you should first reach out to realtors or REO agents and select one to help you with the negotiation.
2. If you aren’t paying in cash, you’ll need a prequalified mortgage estimate. You will also need a prequalification letter from your lender of choice and consider seeking a preapproval from the Neighborhood Assistance Corporation of America (NACA). If you are paying cash, you’ll need proof of cash funds. If you have sufficient home equity loan or line of credit information, you can also use those as sources of funding for your REO purchase.
3. Submit an offer letter – you may want to use certain negotiation tactics to show that you are serious about the property. For example, you can shorten the inspection period or offer to split fees with the bank that owns the property.
How quickly can I get a response to my offer?
Once you make your REO offer, you can expect to wait a week or more for the bank to respond. They may counter offer or they may reject your offer with no explanation. Your offer to purchase may be one of many, so don’t be discouraged if the bank doesn’t accept your first offer. There are many bank REO homes for sale, so keep your options open and move quickly when you find a property that you like.