Preparing To Buy Bank-Owned Properties

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3 critical steps every BOP buyer must take before you start shopping for a foreclosed home.

1. Hire a buyer’s agent who knows the local bank-owned property (BOP) market, is experienced in the sometimes-complex process of buying bank-owned and government-owned properties, and understands exactly what you’re looking for in a foreclosed home.

 A buyer’s agent is a real estate professional who is contracted to look out for the interests of the buyer rather than the seller. Signing with a buyer’s agent means that agent can help you find a home, the agent can help negotiate price and contract terms on your behalf and the agent can provide you information about a home, the sellers, and even previous offers and counteroffers, among other services.

In most cases, buyer’s agents are paid from the sales commissions offered by sellers. (Some arrangements, however, may require payment from the buyer.)

Interview the buyer’s agent carefully before hiring. Find out how many foreclosure-related transactions he or she has completed as a buyer’s agent. Ask how long the agent has been working in the market. Will the agent supply referrals you can contact?

It’s important you select an agent you feel comfortable working with and one who has a clear understanding of your needs and preferences, besides being a foreclosed property specialist.

2. Check your credit. If you are planning on buying a foreclosed property – or any home, for that matter — be sure to check your credit before applying for a mortgage. A 2004 study conducted by the Public Interest Research Group (PIRG) found as many as 79% of credit reports contain errors, 25% of which can be bad enough to cause a credit denial. You’ll want to ensure all the information in your report is accurate — and correct any information that isn’t — to get the credit score you’ll need to qualify for a mortgage at the best interest rates available.

By law, credit reporting agencies must provide you with a free copy of your report once every year — if you ask for it. To request reports from the three major credit reporting agencies — Equifax, Experian and TransUnion:

• By phone, call toll free (877) 322-8228. 
• Online, visit www.AnnualCreditReport.com. 
• By mail, write to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Although you can obtain a free copy of each credit report annually, finding out about your credit score will cost you a few dollars. You may want to pay for your scores if you think you may be close to the cut-off point for a better rate – then do what you can to improve your score before making application for a mortgage.

3. Get pre-approved for a mortgage. As today’s lending standards require higher credit scores and larger down payments than in the recent past, it’s more important than ever for buyers to be pre-approved for a mortgage before starting to look at foreclosed homes. Pre-approval means the lender has reviewed your income/debt ratio, assets and credit profile and determined the amount of money they would be willing to lend you providing various conditions are satisfied by the particular home you decide to purchase — such as a supporting appraisal, clear title, etc.

Here’s how loan pre-approval can help you purchase a foreclosed property:

• Knowing exactly how much money you can qualify to borrow will ensure you don’t waste your time looking at homes you can’t afford.
• Based on your loan pre-approval, you’ll know in advance what contract terms you’ll want to negotiate with sellers — for example, seller-paid points, closing costs, inspections, etc.
• If you find a particularly good deal on a home, you’ll be able to jump on it, without worrying about whether you’ll get the financing you need.
• Your pre-approved loan gives sellers confidence that their contract with you is more likely to go to settlement/closing –and get there more quickly — than would contracts from competing buyers who have yet to secure financing approval.