Many bank owned homes do not list VA or FHA financing as possible loan options they are willing to consider when reviewing an offer. For many home buyers, these are the only types of financing available to them. Home buyer’s looking to buy a home with a minimal down payment, or less than perfect credit, rely on the Federal Housing Authority (FHA) or the Department of Veterans Affairs (VA) to guarantee their loans. In addition to the buyer’s credit worthiness, in order to guarantee a loan, the FHA and VA require the property to fit certain standards of livability. For the FHA, some of these requirements include, but are not limited to, adequate heating for every room, roof with at least 2 years of life remaining, electrical panel in excellent working order, adequate water and power service to the property, no obvious pest and dry rot problems, no major water drainage issues, and any access to the crawlspace be properly protected from rodents.  The requirements for VA financing are similar, but, the VA appraiser is much more thorough with their review of the home. As a result of these property requirements many homes that are bank owned will not be eligible for a VA or FHA guaranteed loan without many upgrades. The banks would prefer to sell the home AS IS, to a buyer using conventional financing or paying in cash. This is why the banks tend to sell their homes for less than market value. Many of the homes require repairs, and the pool of buyers is less than a typical home. The bank will sell a home in a few days, for tens of thousands of dollars less than it would typically sell the same home for, in excellent condition, with a larger pool of buyers.

So how does a VA or FHA home buyer get the bank to review their offer when they do not list VA or FHA as an option? One option is to make the offer along with a request to fix the issues that would stop the home from being FHA or VA eligible. This requires a working knowledge of the lending requirements. A excellent source for this information would be the VA and FHA websites, your loan officer and your real estate agent. 

Here’s one way this situation would play out: You are a VA buyer, and the house you want to make an offer on has a major roof leak and 3 windows are broken. The banks inspection of the home revealed these issues as well and therefore VA financing was not provided as an option.  After reviewing the guidelines online, consulting with your lender and real estate agent you choose to make your offer subject to; the bank repairing the roof, any hurt resulting from the leak, and the 3 broken windows to be replaced with new vinyl windows.  Presenting the offer to the bank in this manner addresses upfront the known issues and the solutions to the problem. The longer the home has been on the market, and the less repairs needed, the more likely this type of offer will be accepted. Banks, their listing agents, and asset managers have many resources for making most types of repairs. They would just prefer not to.

We are currently experiencing a market that has excessive inventory, stringent financing guidelines, tough competition on the best deals and a lot of uncertainty. It pays to be patient and creative. If you want to take advantage of the best bank owned deals, take time to know your lender’s property requirements and know that the longer the home sits, the more leverage you’ll have to get the bank to accept your offer.

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Tagged as: Bank, Financing, Home, Owned, Secured