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7 Steps to Buying an REO Property
Buying a home at an REO sale can be an excellent opportunity to get into a property while saving money since “real estate owned” by the lender is frequently priced at a discount. While REO homes might need some work, it can be an opportunity to immediately create value so that you can end up with equity in your house from day one. Buying a home at an REO sale is similar to the process of buying one at any other sale.
Step 1: Get Pre-Approved for a Loan
Unless you can afford to pay all-cash for your house, the first step in buying REO property is getting your financing in order. The best way to do this is to go through the pre-approval process or to get an Approved Buyer Certificate. When you do this, your lender checks your credit, your income information and looks into your assets to ensure that you will be able to qualify for the loan. Once you have your letter or certificate in hand, you’ll be able to write offers on REO properties and let the seller know that you’re qualified to buy them. Usually, you’ll have a range of different loans to choose from, depending on the type of building you’re buying.
Step 2: Build a Team
The best REO properties can move quickly, so you’ll want to have your team already in place before you start writing offers. You already have a lender. Many buyers work with a real estate buyer’s agent that represents them and helps them with getting through the deal process. Depending on your state, you might also need an attorney. Third parties to help you with your deal — like property inspectors — can also be important to have in place.
Step 3: Find a Property
There are two ways to find an REO sale. One is to have your real estate agent search the local Multiple Listing Service for them. The other is to go right to the lender. Many lenders post their inventory right on their web page so that you can see what they have available. Once you’ve found a property that looks like it might be a fit, it’s time to get serious.
Step 4: Getting Ready to Buy
As quickly as possible, let your agent know that you’re interested in a property. He will reach out to the agent or other professional that is conducting the REO sale. You should be able to tour the home very quickly and determine if it’s for you. Remember that many REO properties need work, so if you find a property with a price that seems very low, it could be because the repairs are already factored into the price.
Step 5: Submitting an Offer
Once you’ve determined that the property is right for you, it’s time to submit an offer. Your agent can guide you as to what type of offer is likely to be accepted, and the company behind the REO sale may require special contract forms or paperwork. Usually, you will also attach an earnest money deposit check to your offer.
Step 6: Inspecting, Borrowing and Preparing
Once you get the property under contract, you will usually work on three things at once. First, lenders frequently can’t give you a lot of information on REO sale properties, so it will be important for you to inspect it so that you know exactly what you’re getting into. Second, you’ll probably be working with your lender on getting your loan approved while the closing and title company complete their paperwork. Finally, it’s time to start packing for your move.
Step 7: Closing
Once all of the paperwork is in place, you’ve wired in your down payment and your loan funds are in place, it’s time to close. At the closing, the seller’s representative and you will sign the documents necessary to transfer the house into your name and to finish your mortgage.
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