You’ve heard the expression before, “Cash is King.”  Today, it applies especially well to buying a bank owned property, also known as an REO (Real Estate Owned by the bank).

Unlike a regular sale of a home, there is no emotion is involved on the bank’s side when a bank sells a property.  They are looking primarily at the bottom line.  They are selling what some people may consider an asset, but what they consider to be a liability.  They want to get the property off their books; but they want to get the most money they can for it.

The strongest offers will:

• Be all cash
• Not request any closing costs
• Not ask for any repairs
• Not ask for a home warranty policy
• Not request any termite treatment

So, what do you get when you don’t ask for anything special?  You get a house at a rock bottom price that is not in the best condition.  Be prepared to have some additional cash on hand for making repairs.

Who is coming to the table with cash?  Mostly investors, at this time.  There are actually several investors in the Whittier area who are buying houses for cash, fixing them up and selling them weeks later for a profit.  And, after they are fixed up, they are selling very quickly in this market.

Now, it is very difficult for a first time buyer, with a small down payment, to buy a home that is priced under $400,000.  Competition is fierce.  So, your offer needs to be as strong as you can make it.

How else can you increase the odds of getting that bank owned home?

• Offer a larger down payment.  The larger the down payment, the greater chance of getting an offer accepted.
• Increase your Good Faith Deposit to 3% of the purchase price.  Sellers will look at you as a more serious buyer.

If you have to finance the purchase with a loan (mortgage) what are the best loans for purchasing a bank owned home? 

• Top of the list is to get a conventional loan, with a high down payment.  If you can do a 50% down payment, then so much the better.
• Next, a conventional loan with the traditional 20% down payment.
• Then, a conventional loan with 10% down.
• Next, government sponsored loans, such as a VA or CalSTRS loan.  Although a CalSTRS loan is conventional, most banks are not familiar with it, and would consider it to be an exotic way to fund the purchase.
• Finally, you can try to buy with an FHA loan, which is perhaps the most difficult offer to get accepted on a bank owned property.  Banks don’t want to have to do any repairs that would be required for an FHA loan.  They want to sell the property “AS IS”.

The higher you are on this list, the better your chances are for getting your offer accepted.