If you are considering purchasing a home or property, you may have heard of a certain type called an REO property. As you evaluate what the right financial choices are for you, it is important that you understand what an REO property is and how it may benefit you in your buying process—as well as what the potential risks are.
An REO property means “real estate owned.” In other words, these properties are not owned by individual homeowners and private parties but rather by banks. Often, REO locations can come up for a good deal, but it is important that you understand the strings that are often attached to REO homes.
How Does A Property Become Real Estate Owned?
Most properties will never go the way of REO. Rather, they will transfer from buyer to buyer without much fuss. However, from time to time, a home will fall into foreclosure. A foreclosure occurs when a homeowner is not able to remain current on their mortgage. The bank, which owns the loan on which the home is collateral, claims the home as a result of non-payment. A foreclosed home will go to market, being sold by the bank in an attempt to recoup the money left on the mortgage loan.
However, sometimes, a foreclosed home will fail to sell, or it will not receive offers sufficient to pay off the outstanding balance on the mortgage. In these cases, the bank will fully own the property, and it becomes “real estate owned,” or REO.
Where You Can Find A Real Estate Owned Property
Banks have a vested interest in selling their REO properties as soon as possible, because for as long as they hold the physical property, they have an outstanding loan that needs to be paid. For buyers, this can mean a new pool of homes to consider, but they often will not show up on standard real estate search engines. Instead, you will need to know where to look.
One of the best places to start is the publicly available listings hosted by the Department of Housing and Urban Development or the IRS. Additionally, Fannie Mae and Freddie Mac may have their own listings that you can browse. Some banks also elect to host their own online listings specifically detailing the homes they are currently holding as REO.
The Advantages Of Buying An REO Property
For many buyers, one of the greatest appeals about an REO property is that it is cheaper than average. Banks are interested in getting these homes sold as quickly as possible and clearing out the loan, which means that they are willing to move quickly instead of waiting for an offer well above asking. If you are considering an REO property, you may be able to benefit from a substantial discount compared to other similar homes. If you are in a rush, REO properties also tend to sell quickly as long as you are prepared ahead of time; your best chances of securing such a property come by having, for example, a strong mortgage pre-approval on hand.
Potential Disadvantages To Be Aware Of
Unfortunately, purchasing a real estate owned property can come with its own set of disadvantages. Many foreclosed properties are in need of repair, both because they have not had people living in them for some time and because the homeowners who could not make their mortgage payments also likely could not make regular repairs and maintenance. This means that REO homes are sold as-is and may come with their fair share of work required to make them livable and homey once again. The bank will not make any repairs prior to the sale; you are buying the property as you see it. Thus, it is crucial to equip yourself with protection, from a thorough inspection to a comprehensive title insurance policy should anything go awry.
Trust A Reliable Title Insurance Agency To Keep Your Purchase Protected
Buying a real estate-owned property can be a great way to purchase more home than you may otherwise be able to fit into your budget. However, it is vital that you thoroughly protect yourself during the process, and one of the best ways to do this is by securing a title insurance policy. By doing so, you will be protected against financial loss if a problem is discovered with the home or property’s title after the purchase is complete. The experts at Mathis Title Company would be happy to explain how this type of protection can benefit you in an REO scenario and set you up with a policy that is right for you. Reach out to schedule an appointment.