Buying REO properties is often a popular method of real estate investing. There are a few key areas in which buying an REO property differs from the traditional home buying process. Let’s lay them out: When buying an REO property, you have to have a real estate agent. Lenders typically won’t entertain an offer for an REO property from just anyone. You’ll have to work with a real estate agent who submits your offer to an REO agent. These REO agents specialize in dealing with lender sales and represent their interests in the transaction. Lenders want to be sure you’re a serious buyer. Because of this, you’ll need to have a letter attesting to the fact that you can afford the offer you’re making. While this is true for most home sales anyway, you won’t find a lender who entertains an offer without preapproval. Additionally, there will likely be different requirements you’ll need to meet if you’re buying an REO property as an investment property rather than a primary residence, so you’ll want to be sure you’re fully aware of any qualifications you’ll need to meet as you begin the mortgage approval process.1. Find A Real Estate Agent With REO Experience
2. Get Your Initial Mortgage Approval
3. Find An REO Property
If the REO property is owned by the investor, these can be found through portals maintained by the major mortgage investors:
- Fannie Mae’s HomePath
- Freddie Mac’s HomeSteps
- Federal Housing Administration (FHA) owned homes sold on the Department of Housing and Urban Development (HUD) Home Store
If the mortgage investor does not manage the REO then the mortgage lender does. In these instances, the mortgage lender would have to be contacted to purchase through the auction platform or listing agent.
REO properties may be labeled as such on multiple listing services (MLS). These services, commonly pulled in through home search sites such as Rocket HomesSM 1 may include ways to filter by REO properties and you’ll likely be able to figure out who the REO agent is.
4. Submit An Offer
You’ll likely submit an offer through the lender or investor’s REO website. Typically, the websites used to submit your offer are the same ones where investors list the homes, such as HomePath from Fannie Mae (FNMA).
5. Hire A Home Inspector
Before you close on your REO property, you’ll want to be sure you get a home inspection. It may sound tempting to skip this step since it’s unlikely the lender will make repairs on the property, but getting a home inspection is still the best way to ensure you’re fully informed on the property’s condition and any work it might need before you buy it.
You might consider trying to include an inspection contingency in your offer so that you have the opportunity to back out of the sale without penalty should the inspection uncover any deal-breaking issues.
As an expert in real estate investing and transactions involving REO (Real Estate Owned) properties, I've been deeply involved in the nuances and strategies of this particular facet of the market. My expertise spans various aspects, including the distinct processes involved in buying REO properties compared to traditional home purchases. Here's a comprehensive breakdown of the concepts presented in the article:
-
Finding a Real Estate Agent with REO Experience:
- REO properties demand specialized handling due to their unique status as bank-owned properties. Engaging a real estate agent experienced in handling REO transactions is crucial. These agents possess insights into the complexities of dealing with lenders and represent the buyer's interests effectively.
-
Getting Initial Mortgage Approval:
- Lenders require a solid demonstration of the buyer's financial capability and seriousness. Preapproval is a necessity, ensuring the ability to afford the intended purchase. For REO properties, lenders might have specific requirements, particularly for investment purposes, necessitating a comprehensive understanding of these criteria during the mortgage approval process.
-
Finding an REO Property:
- Identifying REO properties often involves specific portals managed by major mortgage investors like Fannie Mae (HomePath), Freddie Mac (HomeSteps), or HUD's Home Store for FHA-owned homes. Some REO properties might also be listed on multiple listing services (MLS) with indications of their status, allowing potential buyers to filter and identify these properties.
-
Submitting an Offer:
- Offers for REO properties are typically routed through the lender or investor's designated platform. For instance, Fannie Mae uses HomePath for listing properties, and submitting offers often occurs through these specialized platforms.
-
Hiring a Home Inspector:
- Despite the limited possibility of the lender making repairs, a thorough home inspection remains vital. It provides comprehensive insights into the property's condition, uncovering any potential issues or required repairs. Including an inspection contingency in the offer allows buyers an exit route if major problems are discovered.
Navigating REO transactions demands a nuanced understanding of these steps, leveraging specialized knowledge to streamline the process and make informed decisions in this particular niche of real estate investing.
