Define REO Property

REO stands for real estate owned, and it refers to homes that have been foreclosed by mortgage lenders and are now owned by the financial institutions that foreclosed. Foreclosed homes may also be listed as "bank owned." REO homes are typically priced lower than prevailing market price, and sellers may offer incentives including favorable mortgage terms for financing the purchase of an REO home.

First time buyers

REO properties provide first time home buyers an opportunity to buy a home and get an affordable mortgage. They may also qualify for state, county, and local home buyer funding and assistance.

Real Estate Investment

In spite of today's market fluctuations, licensed contractors and investors can buy a damaged REO property for pennies on the dollar, rehab it, and rent of sell it at a profit. "Flipping" is not recommended unless you're experienced and knowledgeable about home renovation and local real estate markets.

REO Bad News

Foreclosed homes can be damaged by former owners, squatters, and vandals. They may be little more than shells, and can attract crime and vermin. Don't buy an REO property you haven't inspected.

Neighborhood Blight

Foreclosed homes may sit vacant and damaged for months. This invites further damage and can result in citations by city building departments and health agencies. Be prepared to start work on a damaged REO as soon as you buy it.

Negotiate with Seller

Banks and mortgage companies are overloaded with REO homes. Feel free to negotiate with sellers; you may be pleasantly surprised.

Getting a Mortgage

Many lenders selling REO properties can also provide a purchase money mortgage. Ask about this when considering an REO property; you may receive very good terms on a fixed rate mortgage.

Resources

• Fannie Mae Homepath