Bank-Owned Homes Offer Opportunities
Posted by Richard on June 3, 2021
One way into the real estate home or investment market is through bank-owned homes, which can be both affordable and problematic.
Bank-owned properties are exactly what the name implies: The bank has assumed ownership after a borrower defaulted on the loan, so the bank is now the seller.
The number of foreclosures dropped for most of 2020 due to a foreclosure moratorium on government-backed loans. In fact, January figures from ATTOM Data Solutions showed that completed foreclosures were down 86 percent from the year before.
While experts and pundits alike may debate what happens when the moratorium ends — a surge of foreclosures or not? — the fact remains that many people seek bank-owned homes, whether as an affordable way into a property or as an investment opportunity.
Foreclosures usually need some work, so depending on your comfort level and rehab budget (and/or expertise), you can sometimes find a hidden gem in this segment of the real estate market.
Keep in mind the properties are usually sold as-is, and they might not qualify for a conventional loan. The bank might do some prep work, but once a property is on the market, that’s typically the end of it. This means that you can — and should — conduct inspections, but the seller (the bank) is probably not going to fix whatever issues you find.
Make sure you understand exactly what conditions your lender will or won’t allow. Well and septic issues are problematic to lenders, and they generally won’t approve mortgages on properties with faulty systems. Other issues could also stall or halt the loan process.
You still have options, however. One popular option is a rehab loan, including one called a 203(k) loan, offered via the Federal Housing Administration. Check with a mortgage and/or real estate professional about products available for foreclosure or fixer-upper types of properties.