How to Buy Bank-Owned Foreclosed Homes

You can work with a real estate agent or directly with a bank to purchase a foreclosed home.

You can work with a real estate agent or directly with a bank to purchase a foreclosed home.

Whether you're a first-time homebuyer or looking to purchase an investment property, buying a bank-owned foreclosure might be a good option, or even a bargain. Banks acquire these properties after the homeowner defaults on his mortgage loan, resulting in foreclosure. The bank or lender attempts to sell the property through a foreclosure auction sale, but if there are no bids, ownership reverts to the bank. Homes owned by the bank are typically known as real estate-owned, or REO, properties. Because the bank is responsible for the cost of ownership, including upkeep and property taxes, it attempts to sell these houses to other qualified buyers.

Organize your finances before starting the purchase process. Determine your budget and how you will pay for it. If you need a mortgage loan, research lenders and apply for pre-approval for the loan that meets your needs. If you plan to pay cash, be prepared to provide proof that the cash is readily available to close the deal, such as a bank statement.

Contact a real estate agency in your area that deals with REO property sales. Work with an agent who has handled REO transactions in the past to ensure you have someone who's familiar with the process. Review the active listings in your price range with your agent. If the bank allows, the agent can take you to view the properties you are interested in.

Submit a formal offer for the house you decide to purchase. Once again, the real estate agent can help in this step regarding the right amount to offer and writing up the sales contract.

Complete the mortgage loan application process, if necessary. The lender will require forms of income verification, like tax returns or pay stubs, as well as a credit report and other information. Mortgage loans are subject to approval based on the underwriting process, which can take up to a few weeks.

Review the results of the property inspection, appraisal and title search. Ensure you understand the status and condition of the property before setting a date to close the deal.

Schedule an appointment for the closing. Mortgaged deals require much more paperwork than cash deals to close. At the closing, you'll sign the required documents and submit payments.


  • You can work directly with the bank to purchase a foreclosed home if you want. This eliminates the real estate agent and any commission he would earn from the sale. Banks typically try to move the foreclosed homes they own quickly. Purchasing the property with cash up-front might provide you with an advantage for a better price than you'd get with a mortgage loan.


  • It's common for bank-owned foreclosed homes to be sold in "as-in" condition. Sometimes this means the previous owners have left the property in need of many repairs. The property inspection can give you an idea of what kind of renovation work is required to make the property livable. If you're not satisfied with the results, you can cancel the deal prior to closing.

About the Author

Mallory Malesky has been writing business, finance and general knowledge articles since 2008. In her daily life, she works in corporate product management. Malesky holds a Bachelor of Science in natural science from Indiana University of Pennsylvania.

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