bank owned

By: Craig Donofrio

Veterans Affairs loans, or VA loans, carry excellent terms and conditions and are available to most military personnel and veterans. With no down payment required and no private mortgage insurance, these loans are great for anyone who is eligible. But could they be used to buy real estate owned properties?

REO problems

A real estate owned property, or REO, is a home that has been reclaimed by the bank after it failed to sell at foreclosure auction. Often, REOs are sold at a good price. However, that’s often because REOs are sold in “as is” condition, and usually come with problems as the house has been neglected by a homeowner unable or unwilling to make repairs and updates.

That can present a problem when trying to buy one with a VA loan.

VA requirements

While VA loans are flexible on many accounts, one requirement is that the property must be in livable condition. Often, REOs are in poor condition. It is unlikely that a homeowner who was unable to make mortgage payments might have put a lot of money into home improvements and left the home in pristine condition. These homes went into foreclosure, and the foreclosure process can take several months to a few years, depending on the state. The more time the house has been vacant, or sat through the foreclosure process, the more time it has had to break down.

Also, owners who anticipated losing their homes might have taken out the oven, boiler, refrigerator, bathroom fixtures, and other basic amenities. Houses lacking basic amenities, or that have been gutted of wire or have busted plumbing, are not considered livable and would not be approved for a VA loan.

Shop for an REO

If you want to use a VA loan to buy an REO, you’ll want to shop for a livable home. Search realtor.com® for foreclosure listings. A Realtor® can also help search in your area. If a house in town just went into foreclosure, he or she should know about it—that way, you can make an offer soon, instead of letting the house sit for even longer.

When you find a home that looks livable, it’s important to hire a professional building inspector and contractor to let you know what problems the house has. Figure out what repairs are needed and get an estimate for how much they will cost to fix, and compare that to your budget.

Don’t be surprised if a seemingly cheap REO needs thousands of dollars in repairs. Ask yourself if you’re ready to put the time, energy, and money into this home.

Finally, make sure the title is clear. Banks and lenders usually clear the title from liens or judgments, but it’s worth knowing for sure, so perform a title search on the property.

Negotiate

While banks don’t typically want to invest in a foreclosed property, they may be willing to make some repairs if it means selling the property to a capable buyer. It’s no guarantee, but it doesn’t hurt to speak with the lender and see if some contingency repairs can be made.

Updated from a previous version by Gilan Gertz