A bank-owned house can offer opportunities for a profitable return on investment compared to traditional home sales for buyers who understand the process.
They’re a favorite for investors looking to get a deal on a property to flip for a profit.
In this guide, we’ll cover the whole process of making an offer on a bank-owned home.
What is a bank-owned home?
A bank-owned house is any home or property that a foreclosing lender could not successfully sell during a public auction.
A bank-owned house is also called an REO property (REO stands for “real estate owned”).
Homeowners with several missed mortgage payments can also agree to a “deed-in-lieu of foreclosure.” The home gets added to the lender’s inventory with a deed-in-lieu, but homeowners avoid official foreclosure.
Lenders try to sell the homes in their inventory as a way to recoup some of their losses.
What are the steps of foreclosure?
Depending on your state, the foreclosure process can vary, but generally, there are five stages to any foreclosure process.
- A homeowner misses mortgage payments and cannot catch up
- The mortgage lender sends the homeowner a “Notice of Default,” usually in the fourth month of missed mortgage payments
- Forms are filed with the court, and the property is scheduled for public auction
- If the property doesn’t sell at auction, the lender becomes the owner and tries to sell the property
- Previous owners are ordered to evacuate the property once a new owner is named (i.e., bank, lender, auction winner)
How does buying a bank-owned property differ from buying from traditional sellers?
Buying bank-owned property is similar to buying a home from a traditional seller. The steps to buying a bank-owned property are as follows.
Whether you’re buying from a traditional buyer or a bank-owned property, the best first step is getting preapproved for a mortgage. This lets you know how much you can afford and lets sellers know you can afford the transaction.
Additionally, for a lender that’s already had a foreclosure on a property, pre-approval can help the lender-seller view your application positively.
Find a bank-owned house
You can find bank-owned properties through a variety of sources, including bank websites, MLS (multiple listing service), etc.
Appraisal and inspection
Getting a home appraisal and home inspection are often mandatory parts of the mortgage approval process, whether you’re buying a bank-owned house or buying from a traditional seller.
It’s also a good way to ensure that the property is priced at a fair market value or doesn’t need significant repairs.
Make an offer
If the bank likes your offer, they’ll accept. However, they may counter and negotiate with a higher price if your offer is less than asking.
Finalize financing and close on the deal
Once your offer is accepted, you’ll finalize financing and close on the house the same way you would if you were buying from a traditional seller.
Financing the purchase of a bank-owned house
If you plan on buying a bank-owned house for cash, be prepared to show verification that you have the money on hand.
Potential buyers will need to provide a “proof of funds” letter from the financial institution where the money resides.
Potential buyers who don’t have the cash can obtain financing for bank-owned properties through a variety of funding sources such as:
- Hard money loans
- Conventional home loan mortgages
- VA loans (Veterans’ Affairs)
- FHA loans (Federal Housing Administration)
- Construction loans
Interested investors can also consider reaching out directly to the bank that owns the property.
Some banks finance their own bank-owned properties as it allows them another way to generate income on the transaction.
As with any loan, borrowers interested in buying a bank-owned home need a good credit score and reliable income.
It’s worth noting that buying a bank-owned property requires patience from a potential buyer. The transaction involves a ton of paperwork that can translate into weeks, if not longer, just to hear back on your offer to buy.
What are the pros and cons of buying a bank-owned house?
Buying a bank-owned house comes with several advantages, including:
- Motivated sellers
- Competitive asking prices
- More streamlined process dealing with a bank than traditional homeowners
Disadvantages of buying a bank-owned house include:
- Properties are often sold “as is”
- Due diligence is critical to avoid unforeseen costs
- Buyers may have competition on homes/ multiple offers
What is the Process of Working with an iBuyer?
While working with an iBuyer is definitely more straightforward compared to traditional real estate transactions, there are still several steps to the process.
Answer a few questions about your house
Working with an iBuyer starts by answering a few questions about your house. At Simple Home Offer, our free questionnaire takes almost no time to complete.
Instant home valuation
iBuyers use a combination of new tech, industry information, market trends, input from local and national buyers, and proprietary algorithms to generate an instant valuation of your home.
iBuyers will arrange for a professional home inspector to do an inspection of your home to see if any repairs are necessary.
Once the formal sales agreement is signed, you choose your closing date and finalize the sale of your home for cash. The process is just like a traditional real estate transaction, except at Simple Home Offer, we do it in a few weeks—not months.
Collect your money
The final step in the process of working with an iBuyer is receiving your cash and set out to enjoy your new freedom.
Sell your house for cash today with Simple Home Offer.
When you reach out to the specialists at Simple Home Offer, you’re under no obligation, and there’s never any fee for finding out how much cash you could get for your home.
We work with a variety of iBuyers ranging from investors to regular consumers like you, ready to make a cash offer on your home today.
A cash buyer may not be right for every situation, but it could be right for your situation.
Photo by Karolina Grabowska