Real Estate Owned (REO) Process For Buyers
What Is Real Estate Owned (REO)
Real Estate Owned (REO) properties are homes owned by banks or lenders after a foreclosure. When a property doesn’t sell at auction, it becomes an REO and is often sold at a discount. These homes can be a great deal for buyers and investors, though they’re usually sold as-is and may need some work.
HUD Homes (REO)
A HUD home is a 1- to 4-unit residential property that the U.S. Department of Housing and Urban Development (HUD) takes ownership of after a foreclosure on an FHA-insured mortgage. HUD sells these homes to recover losses from the foreclosure, often offering them at competitive prices. HUD homes are a popular option for buyers and investors looking for affordable properties.
Get Pre-approved for Financing
Financing an REO property is similar to buying a traditional home with a mortgage. Common options include a conventional mortgage, FHA loans, home equity loans, renovation loans, and hard money loans. Getting pre-approved for financing early can help you move quickly and increase your chances of securing the property.
Find REO Properties
Most REO properties can be found on the Multiple Listing Service (MLS), lender’s online listings, or popular real estate sites like Zillow and Trulia. You can also work with a knowledgeable real estate agent who specializes in REO sales to help you find the best deals.
Get a Home Inspection
REO homes are usually sold as-is and often exempt from seller disclosures, making a thorough home inspection essential before buying. Since the bank won’t make repairs, the inspection helps uncover hidden problems and gives you a clear understanding of the property’s condition. This step is crucial to avoid unexpected costs and make an informed decision when purchasing an REO property.
Closing
During the closing process of an REO property, the sale is subject to the bank’s final approval. The bank reviews the title for any liens they won’t cover and determines if relocation assistance will be paid to current occupants.
Working with a knowledgeable real estate agent who specializes in REO sales can help guide you smoothly through these steps and ensure a successful closing.
Is an REO Property Right for You?
REO properties typically come with no seller disclosures, which means buying one carries some risk. However, many real estate buyers and investors discover excellent deals thanks to less competition and discounted prices reflecting the property’s condition. If you’re comfortable handling potential repairs and want to capitalize on affordable bank-owned homes, an REO property could be a smart investment opportunity.
Advantages & Disadvantages
Advantages - Lenders are highly motivated to sell quickly, often leading to competitive pricing and potential bargains.
Disadvantages - Often sold in "as is" and can may require repairs or updates, which can add to the overall investment cost.
