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What is an REO?

When banks or other lenders offer mortgage loans, they see them as an investment, because they will earn money from the interest on the loan. If homeowners do not repay their mortgages, banks lose money. To salvage their investment, banks foreclose on homes with unpaid mortgages and sell the properties at foreclosure auctions. If a home doesn’t sell at auction, it becomes a real estate owned property, or REO property.

Why foreclosure auctions don’t always work?

Many foreclosure auctions fail to bring in any bids. Banks or other mortgage lenders do not set foreclosure prices according to the home’s market value. The lenders try to cover their losses and fees. The foreclosure minimum bid price usually includes the balance of the unpaid mortgage loan, interest owed, attorney’s fees, and costs generated by the foreclosure process. Especially in a soft real estate market, the asking price could tower above market value.

When foreclosures become REOs

Once a property becomes an REO, the lender will prepare the house for sale, including removing the occupants, clearing liens on the property, and determining a price. Generally, lenders do not do any upgrades or repair work on REO properties, which are sold “as is.”

When the home is ready for sale, the lender will work with a broker to put the property on the market.

Finding an REO

Typically, even if the lender has an excess inventory of REO property, it will not offer a house at an unbelievably low price. In most cases, the lender and the broker have researched market fluctuations and recent comparable sales to determine a fair price. As with any property, you might find a great deal, but don’t expect REOs to be severely undervalued.

To find REO properties, you may have luck contacting lenders directly. Some lenders may be willing to provide you with a list of their REO properties available for sale. However, working with a real estate agent is an easier, and often more reliable, way to find REOs. The agent will be able to find several options in your area from more than one lender, and help guide you on the right price.

Making an offer

Buying an REO is a complex process. You will have to be a savvy negotiator to purchase the home at a price you want.

An offer on an REO should include a cover letter, stated willingness to buy the home “as is,” and an escape clause that lets you out of the deal if later inspection reveals extensive property damage. You usually won’t be able to inspect the REO before you send your offer.

To increase your chances of landing the REO, make your offer for or close to the asking price. However, if your research reveals the house is overpriced, you might decide to offer below asking price and explain your reasoning in a cover letter.

If you’re in the market for a good deal on a home, you may have heard about bank-owned properties being sold at discounted rates.

Before you make an offer for one, you should know what they are.

In the pre-foreclosure stage, homeowners have defaulted on their mortgage loan but have an opportunity to pay up and stay put. Failure to pay leads to the auction stage, wherein the bank forecloses the property and auctions it to the highest bidder.

Finally, homes not sold at auction officially become bank-owned properties—also known as REAL ESTATE OWNED PROPERTIES (REOs).

Advantages of Buying a Bank-Owned Property

For some home buyers, these properties are a great fit. Here are four reasons why.

1. No Homeowners: Deal Directly With the Bank

When you buy bank-owned property, you only deal with the bank. Some home buyers may prefer to not deal with homeowners. REO properties often are vacant, so home buyers don’t have to deal with tenants reluctant to leave, troubled homeowners or former owners threatening legal action.

Plus, the bank has no emotional attachment to the home, which means you don’t have to deal with a seller reluctant to negotiate for sentimental reasons.

2. No Outstanding Taxes

Did the last homeowners stop paying their property taxes? That shouldn’t be a problem.

To entice buyers, the bank should waive any outstanding real estate property taxes due on the property. However, be on the safe side and do a title search.

3. Option for a Home Inspection

Unlike properties sold at foreclosure auctions, you can request to se and inspect bank-owned properties before you close on a deal. And you absolutely should.

REOs are typically distressed homes, and the former owners are not likely to have kept the place up to date or even move-in ready. Serious work may need to be done.

4. Discounted Prices

Probably the biggest reason that people first get interested in bank-owned properties is because of their below market value prices. But that doesn’t mean you are necessarily going to get a steal.

Homes that require too much repair work can quickly become just as expensive as—or even more expensive than—move-in ready, homeowner-sold properties. 

Compare the bank’s asking price with other comparable homes in the area and be sure to get a thorough inspection.

What is the Closing Process for Buying a home?

Once your offer on a home has been accepted, your inspections are complete, and your financing is in order, you’ll likely breathe a sigh of relief and get focused on packing for the move.

But before you’re handed the keys to your new home, you’ll need to attend the settlement or closing. The more you understand about the closing process, the easier it should be.

Preparing for Closing

If your team of professionals—particularly a REALTOR® and your lender—have been providing you with good service throughout your home search, you should be well-prepared for settlement.

Essentially, settlement day involves the formal, legal requirement of transferring ownership from the seller to you.

Settlement regulations vary from one jurisdiction to another, but two aspects of the process are usually the same no matter where you buy a home.

• Your contract should allow you to schedule a walk-through of the property 24 hours before the closing. At this walk-through, you need to make sure the seller has completely vacated the property (unless you’ve arranged to rent back the property after closing) and the home is in the condition described in the contract. Look to make sure any required repairs have been made and items that are contractually supposed to convey to you are in place. If the walk-through reveals any problems, you can delay the closing or ask for money from the seller to address the issues.
• You have the right to receive the HUD-1 settlement statement for review 24 hours before your closing. Compare the HUD-1 statement to the Good Faith Estimate your lender provided to make sure they’re similar and ask your lender to explain any discrepancies between the two documents.   

    What do you need at the closing?

Throughout the home search, you’ve likely accumulated a lot of paperwork. Bring these documents with you to the closing in case an issue arises and you need to produce one of them—particularly your proof of homeowner’s insurance and your copy of the contract.

Bring your identification and discuss with your lender how you’ll make the down payment and closing costs that aren’t rolled into your loan. You may be able to transfer these funds electronically based on an estimate before the closing, but you could also be required to provide a cashier’s check or certified funds.

You should bring your checkbook, too, for the difference between the estimated balance owed and the final amount.

What Happens at the Closing?

As a buyer, you’ll sign a stack of legal documents including paperwork related to your mortgage and paperwork related to the transfer of ownership of the property. You’ll also pay closing costs and fees and the initially required escrow payments for your homeowner’s insurance and property taxes.

Traditions vary by location, but at closing, there’s usually a representative from a title company or an attorney. In some cases, both the seller and buyer will have an attorney present. Typically your real estate agent will attend your closing and usually the seller’s agent and the seller will attend as well. Some lenders attend the closing, but others simply provide the loan documents to the title company.

When your closing is finished, you should not only have your keys to your new home, but you also need a stack of documents for future tax returns and when/if you eventually sell the property. These documents include your final HUD-1 statement, your Truth-in-Lending statement outlining your mortgage terms, your mortgage note and your deed of trust.

How do I find a Mortgage Lender?

A REALTOR® should also be able to recommend a lender or two for you to interview. You can check for a loan officer’s license and read reviews online to be sure you’re working with someone reliable.

As a first-time buyer, you should call a few lenders to find someone experienced with first-time buyer needs who can possibly help you identify special loan programs in your area.

What to Expect From Your Mortgage Lender

The best lenders take a collaborative approach with borrowers and explain all your loan options. When your lender checks your credit report, they should give you feedback on how to improve your credit profile.

They should also offer recommendations on how to handle your money between the time you apply for a loan and settlement day. 

Your mortgage lender should provide advice about when to lock in your loan rate and discuss the pros and cons of various loan programs.

What Your Mortgage Lender Expects From You

Your lender needs you to be honest about your finances and responsive to all requests for additional information, no matter how unimportant it may seem to you. The more cooperative you are with a lender, the easier the loan process will be.

You should be prepared with tax returns, W2s, bank statements, employer names and addresses, and your current landlord’s information.

Your lender will generate a mortgage approval based on your debt-to-income ratio and credit score, but you should also consider your budget and your own comfort level with the payment amount.

There’s no need to borrow the maximum amount you qualify for, particularly if you know you plan to spend money on items that don’t show up on your credit report. Your careful planning and preservation of your emergency fund are important for responsible, long-term homeownership.

What is a Mortgage Pre Approval?

There’s nothing more frustrating than falling in love with a home and then discovering you can’t afford to buy it.

Consulting with a mortgage lender is the first step you should undertake in the home buying process. Almost all first-time buyers need a mortgage to finance their home purchase, so get prepared before you look.

When you’re armed with the knowledge of what you can afford, it focuses your search and allows you to make a move when you find a home you love.

Lenders offer borrowers either a pre-qualification letter or a pre-approval letter, but most REALTORS® recommend you get a pre-approval letter before you start home shopping.

A pre-qualification letter states the amount a lender thinks you’ll be able to borrow based on your income and credit profile without any actual documentation.

However, mortgage lending standards have tightened since the housing crisis, and all mortgage loans now require full documentation and verification of income and assets—so most sellers will only accept an offer from a buyer with a full pre-approval letter based on verified information.

Your home hunt will benefit with a pre-approval for two main reasons:

• First, you’ll have completed the credit check and paperwork requirements for a mortgage, so you’ll know your ability to finalize a home purchase. If the lender finds a problem with your credit or an error on your credit report, you’ll have time to fix it before making an offer.
• Second, since your documentation will already be in place, a mortgage pre-approval will likely speed up the process once you make an offer.

How to get the best Mortgage Rate when buying a home?

Buying a new home is one of the biggest steps that a person can take. Prior to taking out a home loan, you want to ensure that you get the best interest rate for your mortgage. The lower your rate is, the less you’ll pay over the long run. 

Tip 1: Look For Special Programs

The Federal Housing Administration, better known as the FHA, offers a program designed for those looking at buying homes. This program lets applicants apply for loans and get access to better interest rates. The FHA guarantees that loan and agrees to pay off the funds if the borrower defaults.

The USDA can also help those interested in purchasing homes in rural areas. This can include farmland, ranches and homes located in smaller towns across the country. The USDA developed this program as a way to increase the population in certain areas.

Other programs are available through HUD, especially for those who never owned a home before. HUD is intended to help new homeowners buy homes in underdeveloped and up-and-coming areas. There are also special programs open for those who work as teachers, firefighters and in other positions that help the community at large.

Tip 2: Request Quotes

Not requesting quotes is one of the biggest mistakes that new shoppers make. Did you know that your interest rate can drop by a few percentage points or more just by comparison shopping? Lenders use different criteria when determining who can borrow money and the amount charged, and comparing those quotes can help you get the best fit for your situation.

Tip 3: Improve Your Credit Before Applying

Speaking of credit, one of the biggest factors that determines your interest rate is your credit score. A credit score of 700 or higher will get you a better interest rate than if you had a score of 650 or less. Improving your score before applying is one of the best ways to get a good rate.

Paying down your debt is an easy way to improve your score, but you can also pay your bills on time to get a better score. To learn more about new home financing, improving your credit score and interest rates available to you, be sure to contact your trusted mortgage professional.

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Christmas time in Paris FRANCE 2014