REO Properties: How to Find and Buy Bank-Owned Homes
Real estate-owned (REO) properties can be affordable options for prospective buyers. An experienced real estate agent can help guide you through the process.
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Contributing Editor People who plan to move aren't the only ones who put their homes up for sale. Lenders also list houses on the market.
Bank-owned homes — also known as real estate-owned (REO) properties — may be worth considering as a first-time or move-up buyer. Lenders are motivated to unload these homes and are inclined to offer fair prices.
Here's what to know about finding and buying a house that's owned by a bank.
What is an REO property?
Bank-owned or REO properties are foreclosed homes that were repossessed by lenders and failed to sell at auction. Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders, also have REO properties. The term "real estate-owned" comes from an accounting term — "other real estate owned" — used on bank financial statements.
Here's how a home becomes an REO property:
- After a borrower fails to make mortgage payments for a certain period, a lender can begin the foreclosure process.
- The lender issues a notice of default, then later, if the borrower still hasn't made payment, a notice of sale.
- Unless the borrower comes up with the money, the home is offered for sale at a public auction.
- If the house doesn't sell at auction, the lender takes possession of the property and sells it to traditional home buyers or real estate investors.
A home can also become bank-owned if the lender accepts a deed-in-lieu of foreclosure.
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How to find bank-owned properties
Bank-owned properties are for sale in virtually every city. You can find them through:
- Real estate agents: Bank-owned properties are on the Multiple Listing Service (MLS), the database that real estate agents use to see and post listings of homes for sale.
- Bank websites: Some banks let you search for real estate-owned properties on their websites.
- Specialty real estate listing websites: Websites and companies that connect buyers with foreclosed properties, such as Auction.com, Hubzu and RealtyTrac, show listings for REO properties.
How to buy a bank-owned home
Buying a real estate-owned home is similar to purchasing a house from a traditional owner, but with a few differences. Here are some tips:
- Before shopping, get preapproved for a mortgage to show you're a qualified buyer, just as you would when shopping for any type of home.
- Find a real estate agent with experience helping clients buy REO properties.
- Work with your real estate agent to make an offer. Lenders generally price foreclosed homes below market value in an effort to sell the home fast. After you make an offer, it may take longer to complete negotiations than with a traditional owner because multiple people at the lender may need to give approval.
- Expect your own mortgage lender to require a home appraisal to estimate the property's market value.
- Get a home inspection to learn about the property's condition and needed repairs. An inspection is always recommended when buying a home, and it's critical when purchasing an REO property because records of maintenance and repair work may not be available. Most REO properties are sold "as is," so you'll want to consider the cost of repairs in your offer.
- Get a title search to check for any liens against the property that might not have been discovered at foreclosure.
- Consider a renovation mortgage if you're thinking about buying a bank-owned fixer-upper. A renovation mortgage lets you get one home loan to combine the cost of improvements and the purchase price.
Mortgage loans from our partners
on NBKC
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Min. credit score
620
Min. down payment
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on New American Funding
New American Funding
Min. credit score
N/A
Min. down payment
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on GO Mortgage
GO Mortgage
Min. credit score
620
Min. down payment
3%
Mortgage loans from our partners
on NBKC
NBKC
Min. credit score
620
Min. down payment
3%
on New American Funding
New American Funding
Min. credit score
N/A
Min. down payment
0%
on GO Mortgage
GO Mortgage
Min. credit score
620
Min. down payment
3%
on Rocket Mortgage
Rocket Mortgage
Min. credit score
580
Min. down payment
3.5%
on Veterans United
Veterans United
Min. credit score
620
Min. down payment
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