Sometimes purchasing bank-owned home can be a great financial option. This is especially true for investors looking to buy a cheap home to flip for profit.

However, there are many different kinds of bank-owned properties, as well as significant pros and cons to owning them. Is it even a good idea for you to buy one?

You’re about to find out.

What is a bank-owned home?

A bank-owned home is exactly what it sounds like. It is a property owned by the bank, usually due to a foreclosure. However, if they are not the result of foreclosure, the banks obtains them through a short sale.

A short sale is when a homeowner sells their home for less than it is worth. After the sale, they give all the proceeds to the bank. They are then released from any ties to the property, even though they did not pay back their entire mortgage.

Either way, once the bank owns the homes, those in the real estate industry call these kinds of houses real estate owned (REO) properties.

Banks want to sell these properties for however much the previous owner owed on them. This is because the financial institution wants to recoup the loss of the now-defunct mortgage. However, this doesn’t mean that the price range isn’t still up for negotiation. You just have to be smart about it!

Why should you buy a bank-owned home?

There are many pros and cons for purchasing REO listings. We’ve put together this list of both for you. This way, you can better decide if buying a bank owned home is a good idea for you personally.

Pros of Buying a Bank-Owned Home

Here’s why we think it’s a good idea to buy a home from a bank:

You get to work directly with the bank.

When buying a foreclosure, you purchase a home from the bank rather than from a homeowner. Because of this, you do not have to deal with a seller at all. While you should still use a buyer’s agent, you cut out a party involved in the transaction (the seller’s agent), and thus some of the fees as well.

Banks also have no personal investment in the home, meaning that if you would like it to be a purely business transaction, it is likely you will get your wish. This is a great plus for investors buying properties they want to use to make a profit as it is unlikely they have any emotional attachment to the home either.

You’ll pay less in taxes.

As an incentive for people to step up and purchase foreclosed homes for sale, banks often waive any back taxes owed on the property. This is because they are aware that many potential homeowners are unlikely to have any desire to clean up someone else’s mess and pay their property taxes.

However, it is still always in your best interest to run a title search to check for any, just in case.

Cons of Buying a Bank-Owned Home

Here’s why it could be a bad idea to buy a home from a bank:

You’ll have higher closing costs.

Banks typically do not cover the closing costs for the buyer. You will find that banks never pay for things like transfer taxes or county and state fees. They also do not cover pest reports or home warranty plans. Be sure you know exactly what you are responsible for paying before you make your final offer.

Home inspections are more complicated.

Something to keep in mind: When purchasing REO, home inspections can be a bit dicey. This is because if you purchase a home at a foreclosure auction, you are not allowed to ask for a home inspection. You buy that home completely as is, and sometimes even completely sight unseen.

However, if you are just purchasing a typical bank-owned property, then you can request a home inspection to highlight any major problems. You will have to bring your best negotiation skills to the counteroffer table if you want the bank to make any of the repairs discovered. However, these inspections are a great way to discover if a home is a good fit for you.

Quality of Homes

Foreclosed homes are often not that nice. They typically need a lot of repair work. That’s because as the previous owners could not keep up with their mortgage, it is also unlikely that they were able to keep up with their home maintenance.

This is why foreclosed homes are usually more popular among investors looking to flip the home for profit, rather than owner-occupiers. This is what those in the industry call people who actually live in the homes that they buy.

How to Buy a Bank-Owned Home

You should still use a buyer’s agent to submit an offer on a foreclosed home. Even though you are not working with a typical seller, it still helps to have a professional there to help guide you through the process.

This is because the bank will do things like not sign a counter offer until both parties verbally agree on all the terms, add confusing addendums to purchase contracts, and wait painfully long times to give counter offers.

They might also require that you be pre-qualified for a mortgage. Although you don’t have to work with the bank purchasing from for financing, you are required to have proof of it before they will sell a home to you. Banks are so serious about this that they will start charging you fees if you can’t get your loan pre-approval sorted by closing.