Are bank owned homes really a great deal? More and more clients are asking me about bank owned homes. Are these homes really a great deal? The not so simple answer is, maybe.
First lets determine how a bank comes to own the property in the first place. Once a home owner falls behind on their mortgage, the bank notifies the home owner requesting payment. If the homeowner is unable to bring the loan current, a short sale might be a possibility for the homeowner. Short sales will be discussed in an upcoming blog. If the home owner is unable to pay the loan, the bank will put the home up for auction to repay the debt. If the home does not sell at auction, the bank will take possession of the home and bring in an asset manager to sell the property to sell the property.
You can get a good deal on a bank owned home, but they also come with several large drawbacks. Make sure to weigh the benefits of a good price against the potential issues that could come with buying a bank owned home.
The first and probably biggest drawback, is many times these homes need varying levels of repair. The needed repairs range from simple cosmetic to full blown home renovation. Often times bank owned homes are missing fixtures or appliances, these are easily visible during a viewing of the home, and simple fixes. Sometimes a disgruntled homeowner will damage the property during or after they have moved out, leaving a lot of repairs for the future owner. Sometimes these homes have been sitting empty for several years and have fallen into disrepair. Identifying needed repairs is essential to getting a good deal on a bank owned home.
When purchasing a bank owned home a big problem is the unknown of exactly what you are getting into. The banks have very little to no background information on these homes, and will make no disclosures that homeowners typically make. This is a buy at your own risk scenario. I suggest you get very thorough inspections by professionals. Don’t be afraid to have multiple professional inspections ranging from a home inspection, a plumber, HVAC repairman, surveyor, electrician, and a roofer also give you their opinions. Consult other professionals as needed to get as much information as possible about the home. Some of the needed repairs can be hard to detect, but also be very expensive if missed. These repairs can turn a good deal, quickly into a big headache and money drain.
Obtaining a loan for a bank owned home can be problematic due to the condition of the property. In most cases the banks will allow no repairs to be performed to the property prior to closing. This can be very problematic when using a FHA, VA, USDA, and other government backed loans that have condition requirements. Check with your loan officer to find out the specifics of the loan you are applying for. Since no repairs are allowed, it is possible with some loans, for the buyer to hold money aside in an escrow account for the repairs to be made after closing. Different banks have different requirements, and various loans can sometimes add to these requirements. Meaning potentially longer closing times than buying a home from a traditional home seller.
If you have the time, enough research, and a good mindset, bank owned properties can provide an opportunity for a good deal on a home. Just remember the more information the better and expect delays.