Buying a foreclosure, bank-owned, or REO home
How is buying a home that is bank owned or managed different from other home purchases? Usually, when buying a home, you deal with a seller who lives in the home. On foreclosure or bank-owned homes, the bank has acquired the home through foreclosure, deed in lieu of foreclosure, or forfeiture.
Tips for buying a foreclosure:
Most foreclosure properties are managed by a bank or third party asset manager, which in turn gives the listing to a Real Estate Agent. Buying a foreclosure is a different process and can be very confusing, therefore make sure you have an experienced buyer's agent representing you and your best interest.
You should know the condition of the property, the cost of any needed repairs, and the steps in the loan qualification and closing process before you enter into a purchase and sales agreement. Most banks will allow the sales agreement to be contingent upon an inspection. Therefore, you can personally or professionally inspect the property after a sales agreement has been accepted. Typically you are given 7 to 10 business days after the acceptance of the sales agreement to perform the inspection.
Banks may make some repairs to the property if the damage hinders the buyer from getting a loan. However, banks generally sells each property "as is", which means that the buyer accepts the property "as is" and the bank is not responsible for fixing any problems before or after the settlement / closing. Furthermore, the bank does not warrant or guarantee any work that may have been done on the property, whether as part of its efforts to sell the home or pursuant to conditions in the purchase contract. Buyer should seriously consider buying a traditional home warranty. Sometimes this can be paid by the seller if negotiated upfront within the purchase agreement. An experienced real estate agent with foreclosure sales can guide you through this process and help you mitigate your risks.
Type of sales contract and corporate addendums
Most banks (i.e. Fannie Mae, Bank of America, Freddie Mac, etc) use a state-specific real estate purchase contract and/or a real estate purchase addendum for the purchase agreement. You may hear the term "corporate addendums" required on some REO / bank owned listings. This is basically a purchase contract used by the bank which supersedes or is an addendum to the purchase contract used by the bank. This document may sometimes seem confusing and even imitating to the buyer. If there is anything in the document you don't understand or aren't comfortable with, you may want to contact a real estate attorney to review these documents with you.
Other tips you should know before submitting an offer
You do NOT have to use the bank's title, settlement, or escrow companies. You may designate your own, subject to the terms of the purchase agreement.
If you have a home for sale, almost all banks will not accept an offer contingent on the sale of you current home.
Get prequalified! Banks want to be sure that prospective buyers will be able to complete the sales transaction, including obtaining financing when needed. Prequalification allows you to see how much house you can afford and the mortgage amount you may be able to qualify for before you make an offer on a home. It also helps you focus on homes in an affordable price range. A loan prequalification doesn't mean your loan is approved. You must apply for a loan separately, after you are prequalified and your purchase offer is accepted. Providing a prequalification letter is required when submitting an offer for almost all bank owned properties. Special financing is sometimes available on bank owned properties. Make sure to ask you real estate agent. (If you need a Real Estate professional in the Northwest Arkansas area that has tons of experience in these types of transactions - call Jerry Dou 479-236-0362)
Can you buy a house directly through the bank without going through a real estate sales professional? Typically, with national banks, the bank depends on the expertise of local real estate sales professionals and accepts offers ONLY through a real estate agent. You may work with any real estate sales professional to submit an offer to the real estate agent who has the listed the property. I strongly suggest you utilize an agent that's looking out for your best interest and not the interest of the bank or asset manager.
For more information on purchasing a bank owned property, contact:
Sr. Vice President
Century 21 Exclamation Realty
To find foreclosure properties and other smoking deals in Northwest Arkansas, visit www.NWAFireSale.com.
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