Buying a house REO is a good option for people that want to save money for their primary residence or with investment properties. REO is the acronym for 'real estate owned' and is the term used to describe properties that have been repossessed through foreclosure by banks.
When investing in a house REO it's imperative to perform due diligence to make certain the property is worth the asking price. More often than not, foreclosure homes require a higher level of repairs than properties sold by homeowners.
It's not uncommon for REO properties to be vandalized by disgruntled homeowners that were evicted. Although it's against the law for property owners to remove stationary items such as toilets and bathtubs, people act out against their home as their final act of anger toward the bank
With that said, banks adjust prices for distressed houses that require renovation. Prices are generally around 10 to 20 percent below the appraised value. For this reason, banks generally will not accept any offers for less than the asking price unless additional problems are discovered during the home inspection.
REO houses are sold through foreclosure auctions and via real estate agents hired by banks. When a property is repossessed through foreclosure, banks normally try to sell it at public auction first. If the property goes unsold at auction it is given to the bank and listed for sale by a realtor.
Although banks are responsible for maintaining repossessed houses they don't usually make repairs unless absolutely necessary. Instead, they reduce the listing price and sell houses in 'as-is' condition.
One good source for locating cheap homes for sale is the Fannie Mae Homepath program. The average listing price of Fannie Mae properties is 20 percent below current market value. In addition to being able to buy houses for less, buyers can apply for financing through Fannie Mae's mortgage program, Home Path Mortgage.
A few things that are enticing about financing through Home Path Mortgage include low down payment requirements, down payment assistance, and reduced interest rates. Additionally, some of the Fannie Mae homes for sale qualify for government grant money offered through HUD's Neighborhood Stabilization Program.
NSP grants are offered in all 50 states to people that buy houses in areas with excessive foreclosure rates. Home buying grants are available to individual buyers and real estate investors and funds can be used to renovate the home and offset the amount that needs to be borrowed.
People that qualify for NSP grants and combine funds with Home Path Mortgage can save a substantial amount, so it's worth exploring these options. These programs are especially advantageous for real estate investors who purchase multiple properties. Investors are allowed to receive a maximum of five NSP grants. Furthermore, each state sets aside 25 percent of annual funds specifically for investors that buy houses to provide affordable housing, such as Section 8, to tenants.
Purchasing homes REO as investment real estate or as an owner occupant can be a financially sound choice as long as buyers obtain appraisals, inspections, and repair cost estimates prior to closing.
If you are considering buying a house REO, but uncertain if it's a good option we invite you to learn more about the pros and cons at our real estate investing blog. We offer an extensive collection of home buying articles and resources for first time home buyer programs, government grants, and government sponsored home buying and mortgage programs.