Financing an REO

Banks become motivated sellers in order to get REO homes off their books, because every month that a home sits empty costs the bank money to market the house and keep it in good condition. While banks will still try to get as much money as they can for REO properties, they’re often willing to take a quick loss in order to move on. But when making an offer on an REO property, you need to come to the table prepared.

First, consult with your tax or financial advisor in advance to assess your financial situation and determine your target price range. In order to do so, you’ll need a copy of credit report, 1003 standard loan application, copy of W2 income statements (or 1099s if you are self employed), bank statements, and information about your past home purchases. Once you determine how much house you can buy, go ahead and get your loan application underwritten, not just pre-approved or pre-qualified. The lender is more likely to respond favorably when it has confidence that you can support your offer with proper financing.

Because banks will look at many factors in addition to the asking price, it’s recommended to come up with the largest down payment possible. 10 to 20% is recommended.

Many banks may be more likely to finance a home they own, as they have an interest in unloading the home in order to eliminate the costs associated with owning the home.

And there is often room to negotiate a lower down payment, interest rate, closing costs or asking price. Don’t be afraid to ask.