How to Buy an REO Property From the Federal National Mortgage Association

Purchasing a real estate owned (REO) property from a bank or mortgage company can be a good home-buying opportunity, but can also be pretty risky. The bank is generally a motivated seller, eager to move the property, and might even offer you special incentives for buying an REO property.

On the other hand, an REO house has probably been through foreclosure and is being sold as-is, so buyer beware. The Federal National Mortgage Association, commonly referred to as Fannie Mae, is a large holder of REO properties and has a well-established system for selling them. You can explore Fannie Mae's REO properties online and make an offer on a property of interest to you.

Real estate owned properties, or REOs, are homes that are owned by a real estate company, typically a bank or mortgage lender. Most REOs become bank properties due to foreclosure. A homeowner who stops making his monthly mortgage payments eventually loses ownership of his house through foreclosure and the property goes up for sale at a foreclosure auction. If the property is not sold, full ownership reverts to the bank and the house is then referred to as an REO property.

The Federal National Mortgage Association is a mortgage company that services the secondary mortgage market. Fannie Mae doesn't lend you money directly but, instead, provides mortgage guarantees to and buys mortgages from other lenders. Fannie Mae then resells the accumulated mortgages to other financial groups or may hold them in its own portfolio. Fannie Mae accumulates a large set of REO properties because some homes foreclose during the period when Fannie Mae owns or is otherwise responsible for the mortgage on the property.

All Fannie Mae REO properties are sold under its HomePath brand. You'll find detailed information on HomePath at Fannie Mae's REO website, HomePath.com. The site includes information for potential buyers and for real estate agents interested in REO listings. HomePath.com also details the types of incentive and financing programs that Fannie Mae offers during the purchase process. For example, if you are interested in a house that is a fixer-upper, HomePath can help arrange financing for both the purchase and renovation of REO homes in need of repairs.

Use the search tool at the HomePath website to find properties of interest. You can search by location, price range and property features, such as the number of rooms or square footage. HomePath properties are listed with real estate agents. Your local agent can arrange for you to visit and inspect the REO property of interest. Any offers for a HomePath REO must be made through the HomePath.com website.

You purchase a HomePath property in the same manner as buying a non-REO home. First, line up your financing by either having enough cash to purchase a property or by pre-qualifying for a loan with a mortgage lender. Then submit an offer for the property at the HomePath.com website. The submission involves paperwork that is specific to your particular location; your real estate agent can assist you with the proper forms, which include a real estate contract for your area, as well as a Fannie Mae Real Estate Purchase Addendum used for the HomePath process.

If your offer is accepted, HomePath verifies financing, conducts a title search and schedules a closing date for signing over the property.

Fannie Mae's First Look program gives eligible buyers an early heads-up on new opportunities to purchase REO properties. You can participate in First Look if you intend to occupy the house you are buying, as opposed to buying it as an investment property.

First Look homes that are identified on the HomePath listing are available for the first 15 days of the listing only to owner-occupants, and a select group of other eligible purchasers, such as nonprofit organizations. You can purchase a First Look home through HomePath before the listing is even available to investment buyers who are not eligible for First Look.