How to Buy Bank-owned Real Estate

Bank-owned real estate generally refers to foreclosed homes — homes the bank has repossessed after terminating the property rights of homeowners who defaulted on their mortgage loans. The bank, now the owner of the house, is usually interested in a quick sale of the property, and thus foreclosed homes are offered at reduced prices.

There are several stages to home foreclosure during which homebuyers can get a good deal on a home. A house that is officially deemed "bank-owned property" offers homeowners the greatest advantages. If you want to purchase a foreclosed home, it's important that you understand the process and what steps you need to take to become a proud new homeowner. To get you started, here is some "Foreclosure 101" information and a step-by-step guide on how to buy bank-owned homes.

You can capitalize on purchasing a foreclosure property during each of the following three stages:

1. Pre-foreclosure: Homeowners who fall behind in their mortgage payments don't lose their home right away; rather, they are issued a notice from the bank wherein the default becomes a matter of public record. At this pre-foreclosure state, homeowners can still prevent the loss of their home by working out a deal with the lender — i.e., a short sale.

2. Auction: Once the bank forecloses on a home, the home is often auctioned out to the highest bidder (in an attempt by the bank to recoup some of its losses). This is the second chance homebuyers have to buy a house for less money. This is riskier way of purchasing a foreclosed property. If a sale does not take place, the homes officially become bank-owned property.

3. Bank-owned real estate: Often advertised as "bank-owned foreclosures," these homes offer homebuyers the greatest number of benefits.

Here are some of the advantages of purchasing bank-owned property:

You deal only with lenders and not with homeowners. Foreclosures sell anywhere from five percent to forty percent below the market price. Although more expensive than a home purchased at an auction, the experts advise inexperienced auction buyers to stay away, as they could end up overpaying for a property of lesser value. Bank-owned homes carry the least amount of risk for homebuyers as you can visit a foreclosed home prior to purchase and conduct a home inspection, an option not available when bidding at an auction.

Here are the steps to take to when buying bank-owned real estate:

1. To locate bank-owned homes, contact a real estate specialist that is familiar with the process of making offers on foreclosed homes and in dealing with the banks or goverment.

2. Get pre-approval for a loan from a mortgage lender or you can request financing from the lender who owns the property (since banks are usually anxious to sell, they may offer you incentives for buying a foreclosed home).

3. Consult with a real estate agent who specializes in buying bank-owned property for expert advice on the asking price and on the amount of your offer to the bank.

4. Visit the property to check for signs of disrepair and conduct a formal home inspection (alternatively, you can make the sale contingent upon a home inspection).

5. Submit an offer to the bank. This is often the "make-it-or-break-it" step. To prevent being rejected by the bank, be sure your offer is supported by recent sales data in your area and that it is not too low.

Now that you are primed on how to buy a foreclosed home, best of luck on sealing the deal and finding the home of your dreams.