REO’S – Foreclosures – Bank Owned Properties – Cash Is King, but Is It Worth it?
The Foreclosure market is fast and furious, here on Long Island. Most of the time, these properties are attractively priced and appeal to those who are looking to get into the market, such as renters, first time home buyers and those who missed the chance to buy in the last time prices were at this level, which was 2004.
But many of the foreclosed properties, also known as “REO” and “Bank Owned” are being bought by cash investors who fix them to re-sell or rent them out.
Photo by ELIYAHU GURFINKEL, THE ANN ARBOR NEWS
These homes are put on the market at 55-65% of surrounding property values. That leaves the everyday home buyer, with 10%, 20% even 25% down, who wants to get a good deal on a home little chance of winning a bid on one of these properties here in Nassau and Suffolk Counties. If you are an FHA borrower, putting the required 3.5% down, there is little hope – in this current market, Fall 2009 – of getting one of these homes. Perhaps that will change, but only time will tell. Even if you have a large cash down payment, say 50%, another requirement is a pre-approval for a 203K Rehab Loan offered through the FHA. Often times, these homes have been left abandoned for a year or more as the banks trudge through the foreclosure process and the home has been damaged as a result from neglect, break-in’s, theft, kids using the home as a party-house, etc.
Many of these homes need bathrooms, kitchens, windows, not to mention mold remediation, roofs, carpet, flooring and paint. An FHA 203K Loan will help insure that you have the funds put aside to make those repairs that will bring the house back to being liveable. Lenders want to know you have the necessary funds set aside to do this or the house might end up back in foreclosure again.
Lastly, may of these Bank Owned Properties that are listed require you to be pre-approved through one of their own mortgage specialists. There is usually no obligation or cost for this, but they want to make sure you are truly qualified, whether through income and assets or through a proof of funds letter. Yes – if you say you are a cash investor, you must provide the proof of fund available, either through a copy of t[you bank statement (with your account number whited out, of course). Sure, they hope you will use them to get the mortgage because then they have your business, but it is usually not required once you have been pre-approved.
So, if you’re going to play in the fast moving game of REO’s, have your current paystubs, credit reports and bank statements handy so you don’t miss out on these properties while scurrying to get them together.
Then after all that, get ready to give up all your rights to property disclosure and renegotiation due to condition regardless of what you find during your inspection. These properties are sold “AS IS” period.
So, think buying a REO is a good idea? Please read this story three time and repeat after me “I am a Warrior, I will not be defeated in the quest for a Bank Owned Property”. Good luck.
See this WSJ story below for some more fun anecdotes:
Are Distressed Homes Worth It?
