The Reality And The Myth

For the purposes of this discussion a bank owned home is one that has been foreclosed on and are also called, foreclosed home, repo home,lender owned,HUD home, VA home.
With the increase in the number of bank owned homes available the rumors seem to fly such as:

• It's bank owned it must be a bargain
• The bank that owns the home will loan me the money
• The bank will will never do any repairs
• All bank owned homes are in poor condition
• All bank owned homes are in bad neighborhoods
• I can't get an FHA loan on a bank owned home

First, not all bank owned homes are a bargain, some are grossly overpriced. Some but not all banks pick a number they feel they must get for the house and stick to it, no matter what the market has to say. I can show you a couple of properties in Indianapolis that have been on the market for more than three years and the price is still the same. For whatever reason the bank has decided that they need a certain amount and don't seem to understand that the public could care less what they need. So rule number one in buying a bank owned home : Don't count on common sense from the bank.

The bank that owns the home will loan me the money. My experience has been that it really happens, honestly I don't know why but a couple of banks I have worked with have just said it gets complicated. I purchased a bank owned home years ago and the bank did loan the money to me but I am not sure why. I believe it was because they would not be selling the loan but I'm not really sure.

The bank will never do any repairs. Most of the time this is true, however there are exceptions to the rule. I was selling a HUD owned home years ago (HUD owned homes are homes that had an FHA loan on them) and the person buying the home was getting an FHA loan, the home inspection revealed that the water heater leaked, I let the management company for HUD know this and was told that "we don't do repairs", when the were informed that the buyer was getting an FHA loan and that the loan could not be approved with a defective water heater, needless to say they fixed the water heater. Right now with HUD homes first time buyers can finance repair into the loan with the 203k mortgage, more about that later. Keep in mind though, when you purchase a bank owned home you will be required to sign a document that states you are purchasing the home as is, the sale is still subject to a home inspection that is satisfactory to you.

Bank owned homes are always in bad condition. Often times yes, many time not really. I have been in some bank owned homes that are move in ready, others that nearly everything except the drywall has been stolen and that has holes in it.

All bank owned homes are in bad neighborhoods. You will need to define what a bad neighborhood is for yourself. I looked up FannieMae owned homes today (more about Fannie Mae tomorrow or go the my first time buyer blog at http://www.indyfirsttimehomebuyer.blogspot.com ) and just in Indianapolis there were 159+ house available prices range from $6,500.00 (most likely not habitable) to $259,000, that appears to be in good shape.

I can't get an FHA loan on a bank owned home. This couldn't be further from the truth, when you buy a HUD home you most likely could get an FHA loan, low 3.5%down payment or $100 down for first time homebuyers. I have sold quite a few bank owned homes with an FHA loan, just look the house over cafefully because with FHA loans the house must be in reasonable condition.

Some basic rules:

1. Don't count on the bank using logic or common sense. I had one bank that walked away from an offer because the new lender required the roof be replaced, the buyer was willing to pay to have the roof done, lender said no to the buyer and would not replace the roof themselves. A month went by after the buyer found another home, the lender phoned and told me to get 2 estimates for the roof replaced the roof for $5000, then sold the house for less than the original offer, and we wonder why some banks are in trouble.
2. Expect the unexpected and delays. Nearly anything can and may happen, tax liens appear that take time to get rid of, attorneys did not clear all liens for the foreclosure, bank only placed mortgage on 1 lot when there are 2 lots and the house sits on both, this list could go on and on and on and on.
3. GET PRE APPROVED. There is no sense spending your time looking at bank owned homes until you have a pre approval letter or evidence of cash before submitting an offer, the bank will not even look at an offer without the pre approval letter.
4. Just imagine you are in the Army and be prepared to hurry up and wait.
5. Be patient when looking for the right bank owned home for your purposes.

I you you would like to get a list of bank owned home in Indianapolis and surrounding areas sign up at www.indianapolisbankownedhomes.com