Over the next couple of years home buyers in pursuit of the American Dream are going to have a glut of real estate owned (AKA REO) properties to choose from. Analyst from DBRS (provider of credit rating options) believe that over the next year, the number of REO properties available will double from 2 million to an astonishing 4 million homes, condos and townhouses. These homes are expected to be significantly discounted and consumers interested in buying their next property directly from a lender should know what to expect.
What is An REO Property?
While buying a home is as American as apple pie, most individuals need to secure a mortgage in order to make the purchase. Mortgages (AKA deed of trust) is the legal document "...used by a borrower to pledge their property as security in order to obtain a loan," (Mortgage Marvel). Once the home loan has been contracted and a house has been purchased using the borrowed funds, an individual has the right to move into the home and live there as long as they make their regular monthly payments on time and in full.
Consumers who fulfill the obligation will build equity in their homes and by the end of the mortgage terms they will be the official owner of a home, sans bank involvement. However, consumers who do not meet the fiduciary responsibility may end up in default and may lose their house to foreclosure. When that occurs, ownership of the property will revert to the lender who is the official property title holder. Once the home goes through all the legal stages of foreclosure, the lender will become the sole owner and the home has earned the title of being real estate owned.
The Pros and Cons of Buying An REO
Banks and financial institutions are in the business of money, not real estate. When their books are laden with REO properties, they typically slash the asking price of a home in order to remain competitive against the properties being sold by private sellers. Typically lenders offer their homes at substantial discounts ranging from 25 percent to 30 percent off the fair market value. Those savings can be incredibly enticing to bargain hungry consumers.
Within the real estate industry, buying a foreclosed home in REO status is considered to be the safest way to score housing deals. The properties generally come with clean titles, paid taxes and no liens. Additionally since the banks views the home as a liability they are quick to move it and many times open to price negotiations.
Despite the perks, there are downsides to buying an REO home. To minimize their losses, banks tend not to invest a lot into sprucing up the homes for the market place and REO homes are sold in "as is" condition. In order to avoid becoming the owner a second time around, the banks may require additional paperwork and strict underwriting procedures in regards to the loan. Getting disclosures in regards to the history or condition of a property is not a sure thing and certainly a challenge.
How to Buy An REO Home
The process of buying a real estate owned property is not much different than buying a home from a private seller. Properties will be listed on the local multiple listings service (MLS) and will be labeled as an REO sale, the homes will still be shown by a real estate agent and consumers must still be able to pass the financial tests associated with securing a home mortgage.
However, because of the price point, competition may be steep and REO properties may receive multiple bids raising the sales price. That is why consumers serious about buying an REO home must conduct their due diligence in regards to researching the sales history of a home in order to make a winning bid. Consumers looking to buy an REO home need to double check their budgets very carefully since the home will be sold "as is" there needs to be enough cash on hand to ensure that the necessary renovations and repairs will be covered. Finally, having proof of mortgage pre approval will also make a potential homebuyer more appealing than the competition.
Mortgage seekers in need of a home loan pre approval can count on Mortgage Marvel, the industry's premiere mortgage rates finder, to make securing a loan a breeze. Mortgage seekers simply need to enter the zip code of the area for which a mortgage is needed. In return, Mortgage Marvel will deliver accurate mortgages rates and fees from a variety of local lenders in an easy to comprehend comparison table. That document will simplify the task of finding the best rates and once a consumer finds what they are looking for, they can complete the online application form and receive their pre approval status in approximately 20 minutes.
