Lender-owned or "Real Estate-Owned" properties are often described by seasoned investors as good investment opportunities and an affordable way for first time homebuyers to get into a home.
After an unsuccessful foreclosure auction, a property reverts back to the mortgage company as an REO property. This could happen for a number of reasons, including the amount of equity in the property versus the amount owed to the lender, liens against the property, or factors such as larger market conditions unconnected to the actual bank foreclosure property.
The benefits of mortgaging a Real Estate-Owned property include pre-qualification before you purchase, reducing time and stress. In many cases, the mortgage companies that foreclosed on the homes will hold the mortgage on your purchase for a lower interest rate to improve their balance sheet. REO properties can also represent an investment opportunity when the property is worth more than the sales price.
Of course, buying a Real Estate-Owned property requires careful planning and research. Deposits placed on REO properties are at risk until a mortgage is obtained. It can often be difficult for a potential buyer to inspect the property and determine its condition. Additional funds for repairs above the purchase price could be required.