If you end up cancelling the contract after your inspection, you will just have lost all of that money. This may not be the ideal way for a beginner to start out, but, everyone's situation is different! Do your research to fully understand the REO/Bank-Owned buying process. If you do want to buy an REO property, you have to have your financials ready. Banks tend to set the prices low so properties will sell quickly, and if your finances aren’t in place, you could miss out on a great deal. To prepare, you need to make sure you’re pre-qualified and have a pre-qualification letter from your lender. The letter must include the pre-qualification total, how much you’ll pay for the down payment, and how to reach the loan officer. If you’re paying cash, you’ll still need a letter from the bank to serve as a proof of funds that you do indeed have the cash available to close. This letter will state that you have enough money in your bank account to cover what you’ve offered on the property. One step that’s different in making an offer on REO properties is that you typically have to include an earnest money deposit . Essentially, this is a show of good faith that you’re truly interested in purchasing the property. The deposit will stay in an escrow account, then go toward your down payment and closing cost. These deposits tend to be 1-2% of the full offer, and may or may not be refundable. For example, if you decide not to buy the property after having the property inspected, you likely won’t get the money back, depending on the contract. However, if the bank backs out of the deal, you will may get a refund. This is case by case, so be sure to investigate the property you are offering on and its criteria/terms for the earnest money stated in the contract. There are a few ways to find REO properties. A good place to start is by enlisting the help of a real estate brokerage that can search
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