Trying to buy a house? Yeah, you and everyone else in the country right now. With more people working remotely than ever before, and even bigger priority is being placed on the size and quality of the home.
With such fierce buying competition, prices across the country are skyrocketing. And if you aren’t a doctor, or don’t have rich parents to borrow money from, it can be almost impossible to find a house in your price range.
But if you’re frustrated at the lack of options available, you might be forgetting about repo houses. Repossessed homes are overlooked by many homebuyers, as they assume the houses are run down and unavailable to them anyways.
One of the main draws, though, if you can learn how to access repo homes, is that repo homes supposedly have lower price tags.
Is it true? Are repo houses cheaper? Keep reading to learn all about the house repo segment of the real estate market.
What Are Repo Houses?
Many people have heard the term “repo,” but don’t actually know what it means. It’s quite simple, really
If someone buys a house by getting a mortgage, they owe the bank money every month. If the homeowner fails to make mortgage payments, the house is at risk of being repossessed by the bank, since they are the ones who have paid for the home.
The banks do not want to repossess homes, as it’s too much work for them to handle. They’d rather work with the homeowner to create a plan that would enable them to continue making payments on the home, and continue to live in the home.
Alas, some people still cannot keep up with payments, and rather than continue losing money, the banks instead repossess the home. So this home that the bank now owns is called a repo house.
It’s another term for foreclosure. And it’s the unfortunate reality for many homes across the US, in almost every city and neighborhood.
But this process isn’t fast. In fact, in many states, the process of foreclosure has a certain timeframe that banks need to follow in order to kick out the homeowner and repossess the house. A judge is often needed to officiate the process.
Hence banks would prefer to avoid this process wherever possible.
Are Repo Houses Actually Cheap?
When a bank repossesses a home, that home is now said to be a “real estate owned” (REO) property as opposed to owner-occupied. Banks holding onto these properties are no longer making any interestest.
And because banks are required to maintain the home, preventing the home and yard from falling into disrepair (which they may or may not actually do), holding these homes is actually losing them money rather than earning them money.
So banks are usually motivated to sell REO homes to rid themselves of the logistical and financial burden. As such, they often sell the homes for less than they are worth.
You can usually expect to get a 20% discount on foreclosed homes. In some cases, you may be able to find a better deal. So yes, because banks are motivated to get these homes off their books, they are cheaper. But that doesn’t automatically mean you are going to get a deal, as you’ll soon learn.
How to Buy a Repo House
If you’re interested in finding and purchasing a foreclosed home, your first question is probably how to buy one. Is it the same process as buying a standard home, by getting a mortgage?
Usually, it’s not the same.
Many foreclosed homes go to auction. At the auction, multiple foreclosed homes are sold to the highest bidder, with a minimum purchase price in place.
At these auctions, you’ll typically find real estate investors looking to flip the homes for a profit, or turn them into rentals. While many investors claim to find good deals at auctions, it comes with a high amount of risk.
Most of the time, you can’t walk through the property before purchasing it. Which also means you can’t get an inspection. So you are just hoping the house is in decent shape.
Most repossessed homes are purchased with cash (by said investors). However, there are some methods of financing a repo home.
Most lenders are hesitant to give out mortgages on repo homes, and will either say no or will make the process more complicated. But some government-sponsored programs are available to make it possible.
The FHA loan program is one of the more popular. While the FHA doesn’t provide the loan, it guarantees the loan, so that the lender, such as your local bank, can provide you a mortgage without risk on their end.
Other programs available include the 203(k) program, the Fannie Mae’s HomePath ReadyBuyer program, and the HomeSteps program.
Where to Find Repo Homes
On many of the popular home listing sites, you can usually find a high selection of repossessed homes for sale. However, the listing details are very limited, so it’s hard to get a good idea of what you are looking at.
Banks who own these properties often utilize the service of a real estate agent to list and sell the home. So if you are interested in purchasing one, definitely work with a buying agent, who may have connections with agents that specialize in selling foreclosed homes.
What to Expect When Buying a Repo House
When purchasing a repo home, don’t just think about the discount you are getting. Keep in mind the reason you are getting a discount; the original owner couldn’t make their payments.
Usually, these people don’t leave the home in perfect condition. More often than not, it falls into disrepair because no one maintains the property. The previous owner may even remove appliances, light fixtures, and other items from the home.
Windows often get broken, so you’ll need to pay for house window repair right away. Many repo home buyers find problems with the foundation and need to pay for costly house foundation repair before they can move in.
Basically, you can expect the repo home that you buy to cost a lot of money to make it livable. So you might be getting a discount, but you can expect all of the money that you save to go right back into house repair expenses.
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Repo Houses are Cheaper Until They Aren’t
So are repo houses cheaper? On average, you will get a pretty significant discount by buying a repossessed, bank-owned property than by purchasing a home from the original owner.
However, just because you saved money on the purchase price doesn’t mean you are going to save money in the long run. Repo homes usually need a ton of work before they become livable, so factor that into your buying plan.
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