Are bank-owned homes always cheaper?

Not always. Lenders generally price REO homes to sell based on market value and condition. Some sell below comparable homes because of repairs or the as-is terms, but others are priced at or near market value.

Can I use a mortgage to buy an REO home?

Often, yes. Many REO homes can be financed, although a home in poor condition may not meet a lender's or loan program's property standards. Renovation loans or cash may be needed in those cases.

Will the bank make repairs?

Usually not. Most REO homes are sold as-is, although some sellers will consider a price reduction or credit after an inspection. Whatever you agree should be written into the contract or an addendum.

Do I still need a home inspection if it is sold as-is?

Yes. As-is means the seller will not make repairs, not that you should buy without knowing the condition. An inspection tells you what you are taking on and whether to renegotiate or walk away within your contingency period.

Buyers and investors interested in homes that lenders took back after an unsuccessful foreclosure auction.

Buying a Bank-Owned (REO) Home

A bank-owned or REO property is a home that went to foreclosure auction and was not sold to a third party, so ownership passed to the lender. The lender, or a servicer or asset manager acting for it, then lists the home for sale, usually through a local agent.

Buying REO is closer to a standard purchase than buying at auction: you can usually tour and inspect the home, use financing and receive title through a normal closing. The differences are in the details. Homes are typically sold as-is, sellers use their own contract addenda, responses can be slow, and the condition can range from move-in ready to in need of major repairs.

Bank-owned (REO) roadmap

6 steps from first search to keys in hand. Each step has a guide.

Step 1: Understand how REO sales work
Learn who the seller is, why homes are sold as-is and how bank addenda change a standard contract.
Read the guide
Step 2: Get pre-approved or show proof of funds
Have financing or cash documented in advance, since many REO sellers require it with every offer.
Read the guide
Step 3: Find and tour properties
Search REO listings, tour with an agent and compare against recent sales nearby.
Read the guide
Step 4: Inspect and estimate repairs
Get a thorough inspection, check utilities where allowed and price the repairs before committing.
Read the guide
Step 5: Submit an offer and review the addenda
Submit through the listing process, read the bank's addenda carefully and negotiate within its rules.
Read the guide
Step 6: Close
Review title, the deed type and any seller-specific closing requirements, then close and take possession.
Read the guide

Bank-Owned (REO) guides

What Is a Bank-Owned (REO) Property? A Buyer's OverviewGuide · 6 min readA bank-owned, or REO, property is a home the lender took back after a foreclosure auction failed to attract a high enough bid. Lenders usually clear title and list these homes through agents, which makes them the most accessible type of distressed property for most buyers. They are sold as-is, though, and often need work.Proof of Funds and Pre-Approval for Bank-Owned OffersGuide · 6 min readBank-owned sellers usually want evidence that you can close before they will look at your offer. This guide explains what REO sellers ask for, how a pre-approval letter and proof of funds differ for financed and cash buyers, how to handle a seller's preferred-lender request and when to have each document ready.How to Find and Tour Bank-Owned HomesGuide · 7 min readMost bank-owned homes are listed through agents, but they also appear on government sites and auction platforms, and the listings read differently from a typical home for sale. This guide covers where to look, how to read an REO listing, how government-owned homes are sold and what to look for when you tour a home that has been sitting empty.Inspecting and Negotiating on a Bank-Owned (REO) PropertyGuide · 7 min readBank-owned homes are sold as-is, often after sitting vacant, so a thorough inspection is the most important step in the purchase. This guide covers how to get the home ready to inspect, what to look for, what banks will and will not negotiate and how to handle appraisal and title issues before closing.How to Buy a Bank-Owned Home: A Step-by-Step GuideGuide · 6 min readBuying a bank-owned home looks like a regular purchase, but the seller is a lender with its own forms, deadlines and approval process. This guide walks through each step, from getting financing in place to closing, and points out where REO deals differ from a typical sale.Closing on a Bank-Owned HomeGuide · 7 min readClosing on a bank-owned home follows the same basic steps as any purchase, but the bank's addendum sets the rules. This guide covers the deadlines and late-closing penalties to watch, the limited deed banks usually give, how title insurance protects you, keeping a vacant home safe and insured, the final walk-through and getting the keys.

Terms to know

REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.As-Is SaleBuying & closingAn as-is sale means the seller will not make repairs or offer credits for the property's condition. The buyer accepts the home in its current state, though inspection rights and required disclosures may still apply.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.AppraisalBuying & closingAn appraisal is a licensed appraiser's independent estimate of a property's market value. Lenders require one to make sure the home is worth at least the amount being borrowed.Title InsuranceBuying & closingTitle insurance protects a buyer or lender against losses from ownership problems that existed before the purchase, such as undisclosed liens, forged documents or recording errors. It is paid once at closing.Earnest MoneyBuying & closingEarnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.ContingencyBuying & closingA contingency is a condition in a purchase contract that must be met for the sale to go through. If it isn't met by its deadline, the buyer can usually cancel and keep their earnest money.FHA 203(k) LoanMortgages & financingAn FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.Closing CostsBuying & closingClosing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.Right of RedemptionForeclosure processA right of redemption lets a foreclosed homeowner reclaim the property by paying the full amount owed, either before the foreclosure sale or, in some states, for a set period after it.

Ready to look at real bank-owned homes?

Browse bank-owned homes across the country on RealtyTrac, with property details, estimated values and foreclosure status.

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Calculators for this path

Mortgage CalculatorMonthly payment with taxes, insurance, PMI and an amortization schedule.Fix and Flip CalculatorProfit, ROI and a 70% rule check on a flip.Rental Property ROI CalculatorCash flow, NOI, cap rate and cash-on-cash return for a rental.Closing Cost CalculatorLine-by-line closing costs and cash needed at closing.

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Frequently Asked Questions

Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.