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What you need to know when buying a bank-owned property
By Kauai Board of Realtors - Special to The Garden Island
REOs or Real Estate Owned properties are often seen by Buyers as good purchase and investment opportunities. So, what is an REO?
Real estate-owned properties, or REOs, are real property owned by a bank or lender. Lenders commonly acquire REOs through the foreclosure process, but may also come into ownership of the property through other means, such as a deed in lieu of foreclosure.
Regardless of the method used to acquire the property, once it is owned by the bank or lender, every effort will be made to sell the REO as quickly as possible.
When it comes time to sell an REO, lenders will often turn to the services of a licensed real estate agent who specializes in REO properties. In most cases, these agents will have prior experience in dealing with the special nuances of an REO.
Working with an REO agent is no different than in a typical real estate transaction. Offers are made and counter-offers exchanged until an agreed-upon price and terms are reached between the lender and the potential buyer. There are, however, certain differences that a buyer of an REO property needs to consider.
There are some things to consider when purchasing an REO. For instance, they are usually sold “as is” and the buyer may need to perform maintenance work, adding to the overall cost of the property.
There are often penalties assessed for a buyer’s inability to close by a certain date. The buyer may be responsible for the payment of any homeowner’s association, condominium association or other outstanding assessments. And if the property is occupied, the buyer is usually responsible for evicting the occupants.
Closing costs are often paid by the buyer.
Buy versus rent
Weighing the pros and cons of owning your own property versus renting it from someone else.
If you are paying $1,800 per month in rent, that rent could be paid on a $330,000 mortgage.
∫ Equity: When you own, every payment you make puts you one step closer to owning the place outright. When you rent, that money pays for your landlord’s mortgage, not yours.
∫ Taxes: You can deduct mortgage interest and property taxes. This is not so with rent.
∫ Control: Homeowners can be secure in knowing their family or relatives will have a place to live. Renters may not always be able to renew their lease.
∫ Stability: By choosing a fixed-rate mortgage, homeowners pay the same monthly principal and interest for the entire term of the loan. For renters, when the lease is up, the landlord can raise the rent.
∫ Cost: With the money saved and the low interest rates, buying a home can be affordable. Renters often think they cannot afford a house because many extra expenses are involved.
∫ Mobility: When you own your home, you decide when its time to move. When you rent, you’re at the mercy of your landlord; however, you can move often without the hassle of having to sell first.
Mortgage options
Part of a successful home purchase includes finding the best possible home loan, but with so many different types of mortgages available today, it can get confusing. Every loan has possible disadvantages along with its advantages, so you should be sure to consult with a financial advisor or lending specialist.
Here’s a list of some of the more popular mortgage options available:
∫ Fixed Rate Mortgage: The interest rate is fixed for a set amount of time (generally 30 years, although other timeframes are available). After all of your scheduled monthly payments are over, you own your home. You have a sense of security and predictability, as your payments are always the same. If interest rates go down, you’ll be locked in at a higher rate, but you can always refinance your loan if it makes sense to do so.
∫ FHA Loans: The Federal Housing Administration insures loans on real property made by approved lending institutions and it insures lenders against losses from foreclosures. Approved lenders are able to offer loans with lower interest rates and lower down payments because of the protection provided by the FHA. The lender you choose must be FHA approved and the loan amount may not exceed maximum FHA limits.
∫ VA Loan Program: The Veteran’s Administration assists veterans, spouses of MIAs or POWs, and surviving spouses with home loans. Zero-down financing is possible, but you must meet the criteria to qualify for a Veteran’s Administration loan, which may not exceed maximum VA Loan amount. Certain leasehold restrictions apply and Condominiums must qualify under VA Loan guidelines.
∫ Adjustable Rate Mortgage: With an Adjustable Rate Mortgage, the interest rate fluctuates at predetermined intervals within a minimum and maximum rate cap. The initial interest rates are generally lower than fixed mortgages. An ARM may allow a borrower to qualify for larger loan amounts. An ARM interest rate will likely increase after the adjustment period. By considering an ARM, you are betting that you save enough initially to offset future rate increases.
• The Kauai Board of Realtors is a nonprofit organization comprised of 700 Realtors and associates from the bank, mortgage and escrow industry. The board answers reader questions twice a month in the Business section. For more information, visit www.kauai-realtor.com
Got a question?
• To submit questions about Kaua‘i’s real estate market and practices, e-mail kbr@kauaiboard.com or mail them to Kauai Board of Realtors, Attention: Questions, 4359 Kukui Grove Street, Suite 103, Lihu‘e, HI 96766.
Real estate-owned properties, or REOs, are real property owned by a bank or lender. Lenders commonly acquire REOs through the foreclosure process, but may also come into ownership of the property through other means, such as a deed in lieu of foreclosure.
Regardless of the method used to acquire the property, once it is owned by the bank or lender, every effort will be made to sell the REO as quickly as possible.
When it comes time to sell an REO, lenders will often turn to the services of a licensed real estate agent who specializes in REO properties. In most cases, these agents will have prior experience in dealing with the special nuances of an REO.
Working with an REO agent is no different than in a typical real estate transaction. Offers are made and counter-offers exchanged until an agreed-upon price and terms are reached between the lender and the potential buyer. There are, however, certain differences that a buyer of an REO property needs to consider.
There are some things to consider when purchasing an REO. For instance, they are usually sold “as is” and the buyer may need to perform maintenance work, adding to the overall cost of the property.
There are often penalties assessed for a buyer’s inability to close by a certain date. The buyer may be responsible for the payment of any homeowner’s association, condominium association or other outstanding assessments. And if the property is occupied, the buyer is usually responsible for evicting the occupants.
Closing costs are often paid by the buyer.
Buy versus rent
Weighing the pros and cons of owning your own property versus renting it from someone else.
If you are paying $1,800 per month in rent, that rent could be paid on a $330,000 mortgage.
∫ Equity: When you own, every payment you make puts you one step closer to owning the place outright. When you rent, that money pays for your landlord’s mortgage, not yours.
∫ Taxes: You can deduct mortgage interest and property taxes. This is not so with rent.
∫ Control: Homeowners can be secure in knowing their family or relatives will have a place to live. Renters may not always be able to renew their lease.
∫ Stability: By choosing a fixed-rate mortgage, homeowners pay the same monthly principal and interest for the entire term of the loan. For renters, when the lease is up, the landlord can raise the rent.
∫ Cost: With the money saved and the low interest rates, buying a home can be affordable. Renters often think they cannot afford a house because many extra expenses are involved.
∫ Mobility: When you own your home, you decide when its time to move. When you rent, you’re at the mercy of your landlord; however, you can move often without the hassle of having to sell first.
Mortgage options
Part of a successful home purchase includes finding the best possible home loan, but with so many different types of mortgages available today, it can get confusing. Every loan has possible disadvantages along with its advantages, so you should be sure to consult with a financial advisor or lending specialist.
Here’s a list of some of the more popular mortgage options available:
∫ Fixed Rate Mortgage: The interest rate is fixed for a set amount of time (generally 30 years, although other timeframes are available). After all of your scheduled monthly payments are over, you own your home. You have a sense of security and predictability, as your payments are always the same. If interest rates go down, you’ll be locked in at a higher rate, but you can always refinance your loan if it makes sense to do so.
∫ FHA Loans: The Federal Housing Administration insures loans on real property made by approved lending institutions and it insures lenders against losses from foreclosures. Approved lenders are able to offer loans with lower interest rates and lower down payments because of the protection provided by the FHA. The lender you choose must be FHA approved and the loan amount may not exceed maximum FHA limits.
∫ VA Loan Program: The Veteran’s Administration assists veterans, spouses of MIAs or POWs, and surviving spouses with home loans. Zero-down financing is possible, but you must meet the criteria to qualify for a Veteran’s Administration loan, which may not exceed maximum VA Loan amount. Certain leasehold restrictions apply and Condominiums must qualify under VA Loan guidelines.
∫ Adjustable Rate Mortgage: With an Adjustable Rate Mortgage, the interest rate fluctuates at predetermined intervals within a minimum and maximum rate cap. The initial interest rates are generally lower than fixed mortgages. An ARM may allow a borrower to qualify for larger loan amounts. An ARM interest rate will likely increase after the adjustment period. By considering an ARM, you are betting that you save enough initially to offset future rate increases.
• The Kauai Board of Realtors is a nonprofit organization comprised of 700 Realtors and associates from the bank, mortgage and escrow industry. The board answers reader questions twice a month in the Business section. For more information, visit www.kauai-realtor.com
Got a question?
• To submit questions about Kaua‘i’s real estate market and practices, e-mail kbr@kauaiboard.com or mail them to Kauai Board of Realtors, Attention: Questions, 4359 Kukui Grove Street, Suite 103, Lihu‘e, HI 96766.
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