As the housing market has changed in recent years, the opportunity for people to buy bank foreclosed properties has increased dramatically. As there are more listings coming on the market every day with REO homes for sale, buyers must understand the steps to both find houses for sale and how the buying process works. Many buyers don’t understand how to buy a bank owned home, so they get tripped up along the way with little landmines that can blow up during the closing process. Buying bank foreclosures doesn’t have to be difficult, but buyers must understand how everything works and who they can get to help them through the process.

What is a Bank Foreclosure?

When someone refers to a bank foreclosure, they are really talking about when the bank takes the property back into its inventory because the seller didn’t pay their underlying payment. Sometimes you’ll hear these referred to as REO properties. That stands for real estate owned.

Once the bank has the property in their inventory, they have to go through the process of getting it ready for sale and listing it with a real estate agent. However, there are different kinds of foreclosure homes depending upon what the underlying loan was. For instance, the foreclosure could be a VA home, FHA home or could have been a conventional loan that was foreclosed.

Some of these government foreclosures have different documentation and processes to go through in order to buy them. If you want to buy bank foreclosed homes, you must be aware of some specific things that are important to the transaction. For instance, buyers will often be required to sign a long addenda with all kinds of stipulations that protect the bank.

There are different types of foreclosures in each state, typically called judicial and nonjudicial. Judicial simply means that the bank has to get through a legal process in a court of law to complete the foreclosure. In these states, foreclosures typically take longer. Nonjudicial means that the bank only has to go through a legal process but doesn’t have to go to court. This might mean that they have to send a certain number of letters to the seller before advertising the property in the legal newspaper for four weeks straight. Then, they typically sell it off on the courthouse steps at the beginning of the next month.

What Loans Can I Use to Buy a Bank Foreclosure Property?

There are many different types of loans that a buyer can get when they want to buy a foreclosure property. A lot of that depends upon the type of property the buyer is purchasing. For instance, when the house is sold on the courthouse steps, most states require that the buyer pays in cash immediately upon winning the property. However, if the home is listed with a real estate agent, the buyer is able to get a mortgage on the property just as normal.

Although many people think of real estate auctions as being the ones that are conducted on the courthouse steps, there are a couple of other types of auctions that buyers need to be aware of.

First of all, there are absolute auctions where the property will sell to the highest bidder no matter the price. Some government agencies and lenders are now using this type of auction method so that they can guarantee the sale of the property. Obviously, many buyers are interested in this type of auction since they can get a very good deal on the properties.

There’s also something called a minimum bid auction where bids are only accepted if they go over a certain amount. This is safer for sellers because they can make sure that the property will sell for at least the minimum bid.

Finally, there are reserve auctions where the minimum bid is not publicized. Buyers may do their due diligence and spend a lot of time checking out the property only to find out that they cannot meet the hidden reserve price.

There are many different mortgages that can be used to buy foreclosures. For instance, if the foreclosure is going to need repair work done to it then many buyers may look at and FHA 203K loan which allows repairs to be financed into an escrow account. Some loans will not work on foreclosure property simply because of the repair work that might need to be done. In all cases, it’s important to speak with the mortgage lender about what kind of home you’d like to buy so that they can make sure that the loan will fit your needs.

Buyer Documents Needed

If you’re wondering how to buy bank owned homes, it’s important to know that buyers must provide certain documentation. Here are a few things to have handy:

• The first thing that a buyer needs to provide when looking at foreclosure homes is a prequalification letter from a lender. In fact, some banks will require that the buyer has a preapproval letter showing that the lender has already pulled their credit and income information and approved them for a loan.
• A buyer will typically need to have three months worth of pay stubs in order to qualify for mortgage.
• Buyers also need to provide W-2 forms for the past two years.
• Some lenders will require recent bank statements.
• Tax returns for the last two years will also be required in most cases.

Of course, during the process of buying a home, a buyer’s lender will need to check their credit by pulling a report with the scores.

How Long is The Process for Buying Bank Foreclosure Homes?

If you’re wondering how to buy a bank foreclosure and get it closed in the least amount of time as possible, you need to make sure that you are completely ready with all of the paperwork and preapproval from your lender. Most of the process time is taken up by lending requirements such as the appraisal and underwriting. In addition, buyers are going to want to get a thorough home inspection as well.

The only time that a foreclosure closing will take longer is if there is a title issue that needs to be resolved. In those cases, closings can be delayed several weeks to several months. It’s important to make sure that you work with a reputable real estate agent who understands how to buy foreclosure homes from the bank and navigate the process with you. Don’t work with someone who has never handled a foreclosure deal because they will be using you as a learning tool rather than helping you get through the process unscathed.