How to Buy a "REO" Foreclosed Home

You would have to be living on another planet to not notice all the For Sale signs that have been popping up recently. With over 1 million homes going into foreclosure, the price of homes have been on a downward spiral and have been forcast to continue for a while longer. I am sure you have heard the coined phrase "this is a buyers housing market", while this may be true, if you are a first time home buyer there are things you should ask and be aware of before you make an offer on a foreclosed home.
When looking at foreclosed homes you may notice the letters REO on the sale sign. REO is an acronym which stands for "Real Estate Owned", which simply means the bank now owns the home. This happened because the previous owner did not show up at the court house with the minimum amount owed for the mortgage, therefore the bank took over the property deed. One huge benefit of buying a REO home may be that you are able to purchase the home for significantly less than the market value, which is always a good thing. You should note however that
while buying your first home may be the cornerstone of the "American dream" you should not go into this lightly, after all this may be the biggest investment you may ever make.

Things You'll Need

• Real Estate Agent
• A Pre Approved Loan offer from a financial institution

Instructions

1. Foreclosure homes are usually priced slightly under what the current market is selling for in its demographic, for this reason the bank may receive multiple offers for the home you are looking to purchase. The bank may throw out most of the offers but keep the best two. One way to stand out from the rest is to ask your agent to find out the price the bank purchased at from the trustee deed or sheriff's deed. The amount is noted on the document itself which can be obtained on the tax rolls of any title company. Compare that price to the price the bank is asking.

2. Now here is where your investigation begins, look at the amount of loans ever secured to the property and the amount. Now here is where it becomes tricky. The bank will usually accept somewhere between the original amount the house was purchased at and the foreclosed sale price.

3. Ask your agent to find out if there are any other offers on the foreclosed home. If there are no offers on the home you may be able to offer less for the home than it is listed for. If however their are multiple offers, you may need to increase the price you had originally offered in order to be considered. One point to remember is that banks love cash offers and may consider these first. If you are obtaining financing for the purchase you may need to increase the amount you wish to offer above the cash offers being considered by the bank.

4. You will need to submit a pre approval letter to the bank. One from your own lender and I highly recommend getting one from the lender who owns the property. Banks will trust their own pre-approval departments and tend not to trust others.

5. Do not ask for repairs when submitting an offer. Although some banks will pay for repairs they will not agree to repairs at the time of the offer. You can try to negotiate after your offer has been accepted and after you have done a home inspection

6. Have a clause in your offer to be subject to a home inspection. This will be a wise decision on your part because some sellers who go into foreclosure may have stripped the assets off the home before they left the premises.

7. These are just some of the things you should know when planning to purchase a REO home. Good luck with your purchase!

Tips & Warnings

• Hire a buyer's agent to represent you, they have experience with negotiating with banks and will work on your behalf.

• If you go past your close date with out closing the bank may charge you a fee for each day you go past that date. For this reason you should have your loan pre-approval letter before you submit your offer.