Bank Owned Homes Investment Tips

Bank owned homes encompass houses which were repossessed by banks due to loan default. Once banks foreclose on real estate they first attempt to sell properties through foreclosure auctions. If the property is not sold at auction it is returned to the servicing mortgage lender and placed for sale through bank loss mitigation. One advantage to buying bank owned homes vs. foreclosure houses is banks remove creditor and tax liens and evict foreclosed homeowners prior to listing the property for sale. Although bank owned properties have a higher price tag than properties sold through auction, all the complicated and expensive details are taken care of. Buyers can take immediate possession of the home and not be concerned that foreclosed homeowners may attempt to repurchase their house. In some states, foreclosed property owners are given the opportunity to buy back their home within 30 days after it is sold through public auction. This can be particularly harmful to investors who buy foreclosure houses as investment properties. It can also increase the time required to make repairs because buyers do not want to invest money into the property if there is a possibility the foreclosed owner will attempt to regain possession of their home. Two options exist for buying bank owned homes. Many banks list properties for sale via their company website and accept purchase offers through their loss mitigation department. Others utilize realtors to list, show, and manage purchase offers. Realtors do not approve or disapprove offers. Instead, they act as a go-between for banks and buyers. Mortgage lenders generally do not enter into price negotiations for bank owned properties unless major problems are discovered during home inspections. Bank foreclosures are usually priced at 5- to 20-percent below market value and sold in ‘as-is’ condition. When property requires extensive repairs buyers may find it necessary to take out a construction loan. The majority of bank owned homes require some level of repair. Sadly, evicted property owners often take out their frustration on the home. It is not uncommon to find carpet, countertops, appliances, and plumbing removed or destroyed. Foreclosure properties are often neglected because previous owners could not afford required repairs. Many foreclosure homes sit vacant for over a year and are subjected to vandalism or used as shelter by vagrants. Buyers must conduct due diligence prior to making an offer on foreclosure real estate. As when buying any piece of realty it is vital to obtain home inspections and property appraisals to ensure the price is in-line with current market value. Buyers should obtain preapproved lending prior to submitting purchase offers for bank owned property. Buyers can obtain financing from the lender of their choice. One popular choice for buying bank foreclosures is the Fannie Mae Homepath program. Properties financed through Fannie Mae Homepath may qualify for special financing options. Fannie Mae bank owned homes can be a good choice for real estate investors seeking low-cost properties used as rentals or when offering non-traditional financing options such as lease options or seller carry back trust deeds. Buyers should also investigate Neighborhood Stabilization Program grants offered through the Department of Housing and Urban Development. Combining NSP grants with Home Path properties allows buyers to maximize savings when investing in bank owned foreclosures. Another option for buying bank owned homes is to seek out real estate investors who specialize in wholesaling. Wholesalers purchase bank portfolios consisting of multiple foreclosure homes. By purchasing several properties at once, real estate investors obtain wholesale pricing and can pass along a portion of their savings to home buyers. Wholesale real estate can often be purchased at 20- to 30-percent below market value.
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