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Bank Owned Property: Guide to Buying Discount Real Estate

Bank Owned Property: Guide to Buying Discount Real Estate

Bank ownership is a great way to buy real estate at discounted prices. Bank foreclosures consist of residential homes, commercial properties, and vacant land. Whether you are looking for a first home, a vacation home, an investment property, or a real estate deal, bank properties may be the perfect solution.

To purchase bank-owned properties, buyers must submit offers through the bank’s loss mitigation division or assigned real estate agents. When banks control multiple foreclosures, they often use local real estate agents to list and show properties and submit offers. Buyers should know that banks rarely deviate from the sales price unless extensive repairs are revealed during property inspections.

Banks often take a financial hit during the foreclosure process. The average loss per foreclosed property is estimated at $60,000. The main objective of the banks is to recover most of the losses when selling foreclosed properties. Buyers should plan to offer full sales price or slightly below.

Most foreclosures require repairs. This is particularly true in the case of residential houses. Unfortunately, homeowners of foreclosed homes often retaliate against lenders by causing property damage. It is not common to find retired appliances; floors and walls destroyed or mutilated; or broken windows and plumbing fixtures.

Real estate prices are based on current market value and are adjusted based on required repairs. Buyers must do due diligence when obtaining property appraisals and home inspections. Repairs discovered during the home inspection that were not recorded in the original documents may be used to negotiate the purchase price.

Bank property is generally priced at least 10 percent below market value. However, there are options that allow buyers to get additional discounts. The first involves buying homes through Fannie Mae’s Home Path Mortgage program.

This government-sponsored mortgage financing program offers a wide range of discounted foreclosure properties. Many of the homes for sale are located in areas experiencing a higher than average foreclosure rate and may qualify for Neighborhood Stabilization Program grants offered through HUD.

Fannie Mae established Home Path to clear its national inventory of bank foreclosures by offering special financing options. Home Path can be a good option for buyers with bad credit and those who cannot afford the down payment requirements associated with conventional home loans.

Home Path requires a minimum 3 percent down payment and allows borrowers to obtain down payment assistance from outside sources; which is prohibited when obtaining financing through conventional lenders. Details of the program and lists of foreclosed properties are provided at HomePath.com.

Another way to buy bank properties at reduced prices is to look for real estate investors who buy bank portfolios. When investors buy foreclosed properties wholesale, they get wholesale prices, leaving them room to make a profit while selling real estate below market value.

Last but not least, buyers should consider looking for a bank property that has been on the market for 60 days or more. Banks sometimes negotiate prices when real estate has stagnated or when no one makes an offer.

Using grants in conjunction with Fannie Mae foreclosures or wholesale real estate can further maximize savings and return on investment. Those who take the time to research options and educate themselves on the process can potentially save more than 30 percent or more.

It is best to obtain information from reputable mortgage financiers and government agencies or real estate attorneys and investors who specialize in buying and selling bank-owned foreclosed properties.

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