Understanding Equity When Buying Bank Owned Properties
When buying bank owned properties, you need to consider equity. Equity refers to the value of a home which is not encumbered by a mortgage or other lien. Many REO homes come with instant equity as many of these properties are sold below market value. For example, if you buy a Real Estate Owned house for $100 000 (and take out a $100 000 mortgage) but the home is worth $120 000, the home has $20 000 in equity. One of the reasons bank owned properties are so attractive to homebuyers is because they do offer equity.
Equity is something you will want to actively seek out in the property you buy. Equity does several things. Firstly, it can reduce the interest rate on your home loan. This is why a larger down payment often qualifies you for smaller mortgage payments or a better interest rate. Secondly, equity can protect you. If you need to borrow money for an emergency at some point or need to refinance your home in order to make your mortgage more affordable, equity is something you can borrow against. As well, equity can help improve your credit score. The more equity you have in your home, the better a risk you are to lenders. If you need a loan at some point, having lots of equity in your home can help you get a loan.
When buying repo houses, look for homes with plenty of equity. To do this, you will need to have an assessor evaluate the market value of the property. Compare this to the asking price of the home and subtract any money you will need to pay in order to repair the house. The result will be the average amount of equity you can enjoy. Consider looking for fixer upper bank owned properties – these homes are often priced lower and can mean more equity for you if you are willing to repair them.
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