If you’re looking to buy a home, a foreclosed property can offer an opportunity to spare a bit of change. Understanding the buying process helps you take advantage of all the resources available, whether financial or human. For this reason, we prepared a beginner’s guide to bank-owned homes for sale, how to locate them, and the buying process.
What Is a Bank-Owned Home for Sale?
A bank-owned home is also called a real estate-owned (REO) property. It refers to a repossessed home that is no longer under the ownership of the home buyer; instead, it is under the ownership of lenders such as government agencies, insurers, and banks. Certain occurrences can turn a home into an REO property. These include:
- Failure by a homeowner to make mortgage payments over a long period. It also includes defaulting on the loan after receiving a notice
- An unsuccessful short sale by the homeowner
- When a homeowner dies and their loved ones are unable to settle the outstanding loan
How to Find Bank-Owned Homes for Sale
There are plenty of bank-owned homes for sale in the Southern Metro area; all you need is to look for them in the right places.
1. Through old-school methods
The tried-and-tested method of finding REO properties is by reaching out to the lenders directly. Every lender’s goal is to get rid of any foreclosed home in their possession. So, these institutions will gladly show you their current bank-owned homes for sale. The best part is that you don’t need to visit them to access this list. Check their website to see the REO list.
One thing to note is that some properties tend to sell fast, depending on the lending institution. Be sure to make all the necessary preparations beforehand in case you need to act swiftly.
Another method of locating foreclosed properties would be to physically check for “foreclosure” signs and look for REO ads in public records. Unfortunately, this approach is time-consuming. It is also challenging to get ahead of the competition because the listing is public, attracting more potential buyers.
2. Government agencies
While these houses are bank-owned, other institutions like government agencies and insurers can also repossess a home. Popular institutions to check for REO listings include:
- The Federal National Mortgage Association (Fannie Mae)
- The U.S Small Business Administration (SBA)
- The U.S. Department of Housing and Urban Development
3. Real estate agents
Working with a real estate agent is perhaps the most intelligent approach for finding bank-owned homes for sale for several reasons. First, seasoned real estate agents often partner with lenders to list their REO homes. Secondly, real estate agents have an extensive network which means they have access to properties not available in public records. For instance, a real estate agent will know about current property auctions, where they are, and when they’ll occur. A key advantage of real estate auctions is that they can be virtual. Finally, their understanding of the real estate market is useful in helping you narrow down potential homes.
How to Purchase a Bank-Owned Home for Sale
Buying a bank-owned home can be confusing for first-time buyers. Not to worry, here are some valuable tips to help the process go more smoothly.
1. Receive a loan pre-approval
It would be best to understand your budget, especially if you plan on buying the house on loan. Otherwise, if you are paying using your own money, we recommend acquiring the “proof of funds” documentation beforehand, as you wouldn’t want delays in the process causing you to miss out on a contract.
2. Find a trusted real estate agent
As mentioned earlier, real estate agents are an excellent resource. Some even specialize in listing REO properties. In this case, these agents will direct you to relevant properties, saving you time and the hassle of driving around looking for the ideal property.
3. Making an offer
Again, your real estate agent will come in handy during this process. They will help you make the offer to the lending institution. Let’s not forget that their knowledge of market prices can also ensure you get the house at the best price.
You will then sign your contract once the lender accepts your offer. On some occasions, you might need to pay an upfront deposit, usually 2% of the total price, which will go into an escrow account until you complete the sale.
4. Arrange for a home inspection
A home inspection lets you know the property’s condition and whether you’ll need to budget for repairs. Your agent can find out if the lender had performed a check before doing one to save costs.
5. Carry out a title search
You wouldn’t want to purchase property that has existing issues such as liens. To avoid getting such awful surprises, we recommend doing a title search.
Bank-owned homes are often an excellent option for homeowners on a limited budget. If you’re thinking of buying an REO property in the Twin Cities, working with an experienced real estate agent would be wise. The team at Transition Realty will help you save time as well as improve your options. You’ll have access to a free home valuation report and up-to-date property listings by using our services.
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About Transition Realty
Transition Realty owner Steve Lehmeyer specializes in helping people manage real estate transactions in the Minneapolis/St. Paul area. His experience in the Minnesota real estate market spans 20 years. Steve and his team work with clients to buy & sell single-family homes, townhouses, condos, lake homes, and investment property. Download a free home search app for your smartphone or search the MLS at TransitionRealty.com.