I am a first time buyer. What are the pos and cons in buying a 'bank owned' house in NY? Do I need to to put a big downpayment?

Asked by Vikasliza, Elmont, NY Fri Jun 25, 2010

Buying a bank owned house. Pos n cons

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Paul Welden, Other Pro, Tempe, AZ
Fri Jun 25, 2010
HI Vikasliza,

It is possible to buy a bank owned property using a 0% down payment VA loan (veterans only) or a 3.5% down payment FHA loan. The nice thing about the FHA loan is that there is a version of the FHA loan called the FHA 203(k) loan, which will allow you to purchase a property as-is, include in your mortgage the cost of repairs/improvements and do the work after you own it.

(480) 463-4663
203kContractors.comâ„¢, Contractor Directory for the FHA 203(k) program
Web Reference:  http://203kContractors.com
1 vote
Kathleen A.…, , Rockville Centre, NY
Sat Jun 26, 2010
If you are considering purchasing a "bank owned" home or REO in NY, there are several considerations:
1. Investors with cash are king
2. The Contract, for the most part, is non-negotiable and as-is. A good real estate attorney with REO experience knows how to negotiate these types of transactions.
3. Often, the buyer is required to pay transfer taxes - depending on the area (NYC), this can be costly.
4. These are often time of the essence closings - which means if you don't close by the date in the contract, you could lose your down payment or be forced to pay a per diem penalty.
5. As-is can also include title issues such as Certificate of Occupancy problems and violations - the real estate attorney will be able to do a preliminary review to give you an idea of what kind of issues might exist. Most institutional local lenders are going to want the violations dismissed and Certificate of Occupancy or Certificates of Completion for the structures as presently exist.

Any further questions, please do not hesitate!
Web Reference:  http://nyrelawyer.com
0 votes
Allen Bauman, Agent, New York, NY
Fri Jun 25, 2010

Thank you for the correction.............Allen
0 votes
Paul Welden, Other Pro, Tempe, AZ
Fri Jun 25, 2010
In response to the answer posted by Allen Bauman...........

Allen, you stated "Even with the FHA 203k loan you can only get $35,000 for repairs." This maximum limit is only true for the FHA 203(k) Streamline, but the FHA 203(k) Standard/Rehab does not have a maximum repair amount, except for the maximum mortgage limit for the area where the property is located. So, the maximum mortgage limit for Elmont, NY Nassau County is $729,750 for a single family dwelling and up to $1,403,400 for a 4-unit dwelling. So, while the FHA 203(k) Streamline does has a limit of $35,000 for repairs/improvements, the FHA 203(k) Standard/Rehab has no maximum repair limit, except for the maximum mortgage limit for the area.

Contractor Directory for the FHA 203(k) loan program
(480) 463-4663
Web Reference:  http://203kContractors.com
0 votes
Allen Bauman, Agent, New York, NY
Fri Jun 25, 2010
Hi Vik

All the answers below are very good. From my own perspective as an agent and an appraiser, the amount of work a house needs and the ability to evaluate the systems(plumbing, heating, electric) when the utilities are not on is a challenge. If a home needs to much work it will generally not be mortgageable. Even with the FHA 203k loan you can only get $35,000 for repairs. I suggest that you have a very experienced and practical general contractor available to evaluate a property for you once you find a house you like. Get pre-approved for a mortgage and have the lender let you know if you can get a mortgage on the house based on the contractors estimate of the items that need work. If the appraiser conditions his report on inspecting the house with the utilities on(and he/she will) then once the bank approves your offer they will have to turn the utilities on to determine what is working and what is not. Remember they will not make any repairs, but at least you will know if there are any other expenses for you and you can then decide if you want to continue with the deal.
Vik, I work with first time buyers in Nassau and Queens Counties. These questions come up all the time. I have a unique perspective on these properties and I am willing and able to give you the benefit of my experience.
Don't overlook regular purchases. You can get a fair deal that way as well. I will be happy to help you navigate the current minefield towards home ownership. Contact me and we will work together.

Allen Bauman
Century21 Yve R. E.
Licensed R. E. Agent.
NYS Certified Residential Appraiser
0 votes
Anna M Brocco, Agent, Williston Park, NY
Fri Jun 25, 2010
What is your agent suggesting--Keep in mind that while searching for bank owned properties, don't overlook traditional sales as some may turn out to be a much better buy. Bank owned properties are sold as is and some do need extensive repairs; the lender is looking to get as much money back as possible and the winning offer for the most part is the one with the best price and terms. If you haven't visited with any qualified loan officer(s) yet, do so--see exactly what your budget can handle and have your credit score checked as their scoring is often different--also consider consulting with an attorney who specializes in real estate beforehand.
0 votes
, ,
Fri Jun 25, 2010
With a bank owned property, the issue of the utilities being turned off could be the most important issue you have to face. Even if the home appears to be in very good condition, a bank will not lend on anything other than a 203k loan, which Arlynn has discussed, unless the utilities are turned on and the appraiser verifies that everything is operational. I have someone right now buying a bank owned property, otherwise known as an REO property, who is putting down a very substantial down payment. When the house was originally appraised, the appraiser noted that it had been "winterized", meaning that the water had been turned off. This affects more than the plumbing. Generally the house can't be heated if the water is not on. If they don't know that the heat works, you are not going to get your money.
0 votes
Arlynn B. Pa…, Agent, Roslyn Heights, NY
Fri Jun 25, 2010
Good Morning!

The pros and cons of buying a bank owned (REO) home are several.

The major "pro" is that you will usually buy the home at a price substantially below market value. Since the bank already owns it the buying process will be similar to that of any other home purchase. You will make an offer (you may have to submit it in writing with a pre-approval) and the bank will either counter-offer or not.
You have a right to conduct an engineer inspection, however, and although in most cases, the bank will not make any repairs you may be able to re-negotiate if a serious defect is found.

The major "con" is that very often the home is not in great condition and will need substantial repair. Additionally, the utilities will be turned off so that you may be negotiating on a home in which you cannot test the heat, electric and water! You may be able to request permission from the bank to pay for and turn on the utilities in order to conduct your engineer inspection.

As for the downpayment - if the home is in such dire disrepair that no bank will give you a mortgage (ie: the kitchen or bathrooms have had all fixtures and appliances removed or the heating system has been damaged) then you will need to purchase with either all cash or what is known as a 203K loan (a loan that will allow you money to make the repairs). If the home is in good condition then, if you qualify and if the bank that owns the home agrees, you could even purchase with an FHA mortgage and a low downpayment!

If you would like additional information and/or would like to speak with a reputable mortgage broker regarding this question, please contact me.

Good luck and regards,

Arlynn B. Palmer
Associate Broker, REALTOR
Coldwell Banker Claire Sobel
Web Reference:  http://www.ArlynnPalmer.com
0 votes
Century 21 P…, Agent, Massapequa, NY
Fri Jun 25, 2010
The pros and cons of buying a bank owned property are the same as if you were buying a property from a real live person. Issues with condition, certificates, permits, variances, delays, problems, etc. will arise with any house.
The downpayment issue depends what you are qualified for - just beacuse the property is bank owned does not require more of a downpayment.
Seek the help of a professional Realtor, Mortage Broker, Attorney, Inspector for your real estate transaction & Good Luck.
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