Today, you are hearing more and more about foreclosures on the news and on the lips of just about everyone. However, if you listen in or read the information provided you may still feel like you are in the dark due to the terms used when talking about buying a home. Not only that, but you may not know the best approach when it comes to striking a good deal.

Some of the terms you may hear include Bank Owned, Short Sales, FSBO, and REO.
REO is real estate that is owned by a lending institution whereas the buyer went into default on their mortgage loan and the institution foreclosed on the property.
Bank Owned is the same as REO. The only difference is the owner of the property is the bank instead of a lending institution.
FSBO is a home that is for sale by owner. Not every home you see for sale by owner is in danger of foreclosure; however, many homeowners are opting to sell their homes quickly to avoid foreclosure.
Short Sales are the result of a homeowner selling his home for less than what is owed on his mortgage and the lender agreeing to accept this money as final payment while forgiving the rest of the mortgage in cases where the homeowner cannot make their mortgage payments.

Now that you understand the difference in the terms, here is the low down on the best approach.

FSBO and short sales is probably the worst way to get a smart deal. The reasons being, the homeowner wants to sell the home quickly while saving his credit rating. This means that if you go on the homeowner’s word alone you may find there are problems with the home or even the mortgage after you sign the dotted line. When purchasing from an individual, you should learn exactly how much is owned on the property, have the home inspected, and appraised. This will at least avoid any surprises in the future. With short sales, if you purchase the home from the homeowner for a lower amount than what is owned on his home, you will not receive a clear deed until all the mortgage loan is paid or the original homeowner makes a deal with the lending company. Who is going to pay off the rest of the loan? If the homeowner could not make their payments, do you really think they will be able to pay off the rest of this loan and have the money to move and make payments elsewhere? Before you agree with a short sale you should make sure the lending company will give a clear deed to you for the amount of money you wish to pay for the property.

When it comes to Bank Owned property or REO, you will need to work with the bank or lending company in order to purchase the home. Remember these institutions do not really want this property. They are in business to loan money, there are not in the real estate business. All they really desire is the money that is owned on the mortgage. This means if a home is in foreclosure, the amount of money left on the mortgage is only $100,000, and the home appraises for $300,000 - the lending company is only interested in the $100,000. Therefore, you could purchase a $300,000 home for only $100,000.

Talking with a real estate agent is the best way to find homes that are bank owned, REO, or in foreclosure. However, if you wish to do all the legwork yourself, you can begin by calling banks and lending companies in the area to learn what properties they have available. This is not an easy task. A realtor will be able to give you the information quickly and even schedule an appointment so you can see the property before you offer a bid.

This entry was posted on Sunday, March 2nd, 2008 at 2:13 pm and is filed under San Diego Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.