Print this page

Buy a Foreclosed Property

Considering purchasing a bank-owned, foreclosed, or REO property?

Let us help you understand the options and considerations so you can make informed homebuying decisions.

If you're thinking about buying a bank-owned, REO, or foreclosed property, you can learn more about the process, financing considerations and options and get pre-qualified.

What are the fundamentals of buying a foreclosed home?Show Details

Myth: Foreclosed properties can only be purchased with cash. Truth: On average, approximately sixty percent of our foreclosed homes purchased are financed.
Your reasons for purchasing a bank-managed or REO property are as unique as you are. Learn more about the key considerations and common questions surrounding buying a foreclosed home.

Here are the answers to some commonly asked questions about purchasing foreclosure properties.
What are foreclosed properties?
  • A foreclosed property – also known as a Real Estate Owned (REO) or bank-owned property – is a home that was once customer owned but is now owned by the mortgage holder.

    REO property is generally acquired as a result of a foreclosure action on a mortgage or if the property was voluntarily turned back to the lender – referred to as a "deed in lieu of foreclosure." The investor (which may be the original lender or a subsequent holder of the mortgage) becomes the legal property owner and offers it for sale to recover the amounts owed to it.
  • A foreclosure can occur when mortgage payments are not made over a period of time and efforts to resolve the default are unsuccessful. While we make every effort to help customers remain in their homes, sometimes foreclosure becomes the only option.

How quickly can I take ownership?
  • The home appraisal, inspection and financing processes are similar to when you buy a traditional home.
  • Title and county deed recording issues could potentially delay your purchase.

How can purchasing a foreclosed property help a community?
  • A local community benefits when foreclosed homes are sold and occupied.

Are bank owned properties sold at a discount?
  • Banks work with local real estate professionals to set fair market values that reflect the local market and property condition.
  • Properties range in condition from fully distressed to move-in ready.
    • A distressed home may be sold at a slight discount if it is sold "as-is" with no repairs.
    • Move-in ready homes are typically priced at market value.

Do I need cash to buy a bank-managed home?

Are REO homes in poor condition?
  • If an REO property needs repairs or improvements, our Purchase & Renovate SM loans cover both needs. Loan amounts are based on the increased value of the home after improvements are made. Renovations can begin immediately after closing (restrictions apply). And the renovation costs are spread throughout the entire loan term.Footnote number 55

What should I consider before I buy and finance a foreclosed home?Show Details

When you buy and finance a bank-managed home, there are some items to consider:


Your reasons for purchasing the property dictate many of your considerations. You may benefit from information and insight from our Learning & Planning Centers when finding and financing your home:
Type of foreclosed home:
  • Are you looking for a move-in ready home or are you willing to make repairs? If you are considering a home that needs repairs or remodeling, Wells Fargo has options that let you combine your home improvement costs with your mortgage.
  • Our Purchase & Renovate SM loan option allows you to borrow based on the future, improved value of the home instead of the current value. Renovations can begin immediately after closing (restrictions apply). And the renovation costs are spread throughout the entire loan term.Footnote number 55

Inspection and repair:
  • Before you buy a foreclosed property, you may want to consult with a reputable home inspector about the kind of repairs and costs to expect for the type of homes you have in mind.

  • If you are purchasing a Wells Fargo property or a home managed by our REO division, Premiere Asset Services (PAS), you will be required to provide one of the following with your offer:Footnote number 11
  • If you are a cash buyer, you don't need a prequalification letter, but you may be required to provide proof of funds when you make your offer.
  • If you are keeping your current home, you may be able to use the equity in your home to buy a bank-owned home:
    • With sufficient equity, you may be able to purchase the property and avoid an additional first mortgage.
    • You avoid paying private mortgage insurance by making a down payment of 20% or contribute a larger down payment to lower your monthly mortgage payment.
    • You can select the home equity closing cost option that meets your needs.
    • Typically, the interest on home-equity financing can be tax deductible. (Consult your tax advisor regarding the deductibility of interest.)

What basics should I understand about home loans?Show Details

As with a traditional home, if you obtain a mortgage or home equity financing to purchase your foreclosure, you will repay more than you borrowed.Footnote number 22 How much you repay is determined by several factors. Here are the terms you should understand:

Interest rate
  • The interest rate is the percentage of your loan amount we charge you to borrow money to buy your home.
  • Interest rates are based on current market conditions, your credit score, down payment, and the type of mortgage you choose. Check today's rates.

Discount points
  • One point equals 1% of your mortgage amount.
  • If you qualify, you may be able to pay one or more points to lower your interest rate. A lower interest rate means lower monthly mortgage payments.
  • Points are usually tax deductible. (Consult a tax advisor on the deductibility of interest.)

Origination charge
  • The amount that includes all charges (other than discount points) that all loan originators (lenders and brokers) involved will receive for originating the loan.
  • This charge covers items including fees, document preparation, and underwriting costs, and other expenses.

Loan term
  • Your loan term is the amount of time you have to pay off your mortgage balance.
  • Shorter loan terms typically mean higher monthly mortgage payments, but often have lower interest rates. And if you pay off your mortgage balance within a shorter term, you may pay less in total interest than with a longer-term mortgage.

Remember that interest rates only tell part of the story. The total cost of a mortgage is reflected by the interest rate, discount points, and origination charges. This total cost is known as the annual percentage rate (APR), which is typically higher than the interest rate. The APR enables you to compare mortgages of the same dollar amount by considering their total annual cost.
What is PITI? PITI stands for the four elements that make up most mortgage payments: Principal, Interest, Taxes, and Insurance.

Your monthly mortgage payment is typically made up of four parts:

  • Principal is the amount of money you borrowed.
  • Interest is the cost of borrowing the money.
  • Taxes are the property taxes charged by your local government. Typically we collect a portion of these taxes in every mortgage payment and hold the funds in an escrow account for tax payments made on your behalf as they become due.
  • Insurance refers to homeowners or hazard insurance that provides protection against loss from property damage due to wind, fire or other risks. Like taxes, insurance costs are typically collected and paid from an escrow account.
View loan options now.

Depending upon your property location, property type and loan amount, you may incur other monthly or annual expenses such as mortgage insurance, flood insurance, and homeowners association fees.

How will you evaluate my mortgage application?Show Details

When your application is complete, we review the following four components:
  • Do you have a reliable, continuing source of income to make monthly payments?
  • Income can come from primary, second, and part-time jobs, as well as overtime, bonuses, and commissions.
  • You may use other sources of income if you want them considered for payment – including retirement or veteran's benefits, disability payments, alimony, child support, and rental or investment income – provided they can be verified as stable, reliable, and likely to continue for at least three years.

Learn more about establishing and improving your credit
Current debts and credit history:
  • Do you pay your bills, loans, credit cards and other debts on time?
  • We examine your payment habits before deciding to loan you money.
  • Your credit history and credit score are also examined prior to deciding to loan you money.
  • It's a good idea to check your credit history and correct any problems before applying.

Assets and available funds:
  • Do you have enough funds for a down payment and closing costs?
  • You may use funds from a savings account, certificate of deposit (CD), investments, and retirement fund.
  • In some cases, you may be able to use a gift funds toward closing costs and all or part of the down payment.
  • In many cases you will also have to demonstrate that you have additional funds in your accounts to cover several months of mortgage, tax and insurance payments.

The property:
  • What is the market value of the property you want to purchase?
  • We will order a property appraisal to make sure your property's value meets our underwriting requirements.

Responsible Lending guidelines

We approve applications where we believe the borrower has the ability to repay the loan or line of credit according to its terms. We use two ratio-based guidelines to evaluate your ability to repay.Footnote number 22
What is debt-to-income ratio? Debt-to-income ratio is the percentage of your monthly income that is spent on monthly debt payments.
What is housing-to-income ratio? Housing-to-income ratio is the percentage of your monthly income that is spent on monthly housing payments.
Debt-to-income ratio:
  • Your expected monthly mortgage payment (principal, interest, taxes, and insurance) plus your other monthly debt obligations to your gross (pre-tax) monthly income are compared.
  • Mortgage program guidelines vary, but a good rule of thumb is to keep your total debt level at or below 36% of your gross monthly income.
Housing-expense-to-income ratio:
  • We also compare just your expected monthly mortgage payment (including taxes and insurance) to your gross monthly income.
  • Mortgage program guidelines vary, but a good rule of thumb is to keep your housing expense level at or below 28%.
How to calculate your ratios

Even if you fall within the 28%/36% rules of thumb, make certain that you feel comfortable making your monthly mortgage, insurance and tax payments and the payments on all your other monthly obligations. Homes have other costs—such as utilities, maintenance and repairs—that may not exist if you rent.

How can I get started with homebuying?Show Details

Your reasons for buying an REO property are varied but you want to understand the steps involved. To increase the chances for a successful start, you should gain control of your finances, know your buying power, have a selection strategy, and knowledge of the area where the property is located.

Your down payment may come from two sources — equity in your current home, and any personal savings you have built up in bank or investment accounts. You can also prepare by:

Deciding how to begin
  • A good first step is to get a free Wells Fargo prequalification so you have an estimate of how much you may be able to borrow.Footnote number 44

Creating a financial plan

Estimating what you can spend
  • Calculate your monthly payment.
    • Use our payment calculator to estimate payments for various mortgage amounts and interest rates.
  • The total amount you need is the sum of your down payment and your closing costs.
  • Estimate the proceeds from the sale of your current home that can be used to buy your new home.
  • If you have less than 20%, you will need private mortgage insurance (PMI) which protects the lender if a borrower stops paying the mortgage.
  • Closing costs and prepaid expenses are also a necessary part of getting a mortgage.

Setting a time frame
  • Determine when you'd like to buy your home.
    • Take into consideration your credit, cash flow, and savings.

Let's work together to help you achieve your homeownership goal while also helping to rebuild communities impacted by foreclosure.

How do I estimate what I might be able to borrow?Show Details

Before you begin looking for a foreclosure property, it is a good idea to know your price range. We provide two ways to find out how much you may be able to borrow:
  • A free mortgage prequalification lets you estimate how much you can borrow, based on basic financial data you provide.Footnote number 44
  • A preapproval letter tells a REALTOR and seller that you've been preapproved for a specific amount based on a preliminary review of your credit information.Footnote number 33

What is the difference between a prequalification and a preapproval? Prequalification provides a ballpark loan estimate with no credit check and no fee. A preapproval provides a preliminary credit review with a credit check and a fee.
Preapproval is not a commitment to lend. A commitment is contingent on verifying application information, satisfying all underwriting requirements and conditions, and an acceptable property appraisal and title.

Remember: Neither a preapproval nor a prequalification obligates you to borrow from Wells Fargo.

How can I benefit from a preapproval?

  • You can identify and address possible qualification problems early in the homebuying process.
  • Obtaining a PriorityBuyer® preapproval tells real estate agents and home sellers that you have been preapproved for a specific mortgage amount.Footnote number 33 Real estate agents and sellers increasingly rely on preapproval to identify serious offers.
  • Provides an advantage over buyers who are not preapproved.
  • Adds to your negotiating strength when you are ready to make an offer on a home.
  • Lets you shop confidently because you know how much you may be able to borrow.
  • May allow for a faster closing, since the first round of credit decisioning is already completed.

First-time homebuyers can benefit from preapproval in the following ways:

  • Without a record of previous mortgage payments, a preapproval can help you feel much more confident pursuing your first home purchase.
  • A preapproval shows the seller that a lender has already run the numbers and is willing to proceed with the mortgage.

How does the process work?

  • If you're still in the early stages of house-hunting and want to know roughly about how much home you can buy, request a free mortgage prequalification.Footnote number 44
  • If you're ready to move forward, line up your financing ahead of time with a PriorityBuyer® preapproval, which requires a credit check and a completed mortgage application.Footnote number 33
  • Work with us online, over the phone, or in person with your local consultant.
Have questions or need help? Our home mortgage consultants are available to help you throughout the home financing process.

View loan options now.

What occurs during the rest of the process? Show Details

Once you've decided to buy a foreclosed home, Wells Fargo is with you – every step of the way. We are ready to help as you plan to buy, when you purchase and even after you own your property.

Making an offer

Your REALTOR® can help you determine the appropriate amount for your initial offer based on comparable home sales, market value, condition of the home and your closing date.

When you make the offer, consider these tips:
Put your offer in writing
  • Negotiations should not be handled verbally; writing ensures understanding between the parties.
  • If you do negotiate verbally, follow up in writing.

Have your preapproval for maximum leverage
  • A preapproval tells real estate agents and home sellers that you have been preapproved for a specific mortgage amount. Real estate agents and sellers increasingly rely on preapproval to identify serious offers. Footnote number 33

Submit a deposit
  • This "good faith" deposit demonstrates commitment to the transaction.

Finalize your purchase contract
  • The contract is a legally binding contract between the buyer and seller describing all the terms of the transaction.
  • Depending on which state you live in, an attorney, real estate agent, or title company may help negotiate and draft the contract.
  • See what purchase contracts typically include.

Next steps

Wells Fargo's Learning & Planning Center can help you understand all the steps of the home financing process.
Contact Us

Home Equity
Contact Us

Account Management


Banking Closing Costs

Wells Fargo Home Equity accounts are free of origination fees, and fees for the application, appraisal, and another bank charged fees.

Depending on your state, you may be responsible for mortgage taxes, attorney fees and other third-party fees.


REO property is generally acquired as a result of a foreclosure action on a mortgage or if the property was voluntarily turned back to the lender—referred to as a "deed in lieu of foreclosure." The investor (which may be the original lender or a subsequent holder of the mortgage) becomes the legal property owner and offers it for sale to recover the amounts owed to it.

Premiere Asset Services

Premiere Asset Services (PAS) provides REO management for the mortgage portfolios serviced by Wells Fargo Home Mortgage.
PAS is the trade name Wells Fargo does business under to manage REO's on behalf of other large banks and financial institutions.

Specific mortgage amount

Based on a preliminary review of your credit information


The Neighborhood Assistance Corporation of America (NACA) is a non-profit organization that works to create strong neighborhoods by promoting affordable housing.

Total the amount of your savings and other down payment sources

How much you could put toward a new home, down payment and closing costs using:
- savings and money market accounts,
- stocks and bonds
- certificates of deposit

Closing cost options

Most home equity financing offers two options:

Have us pay your closing costs
  • You pay a higher interest rate to cover all required third party costs
  • This option is not available for financing greater than $500,000
Pay your closing costs
  • You pay a lower interest rate
  • Pay with your loan proceeds, line of credit, or a check

    For details, please contact us.

Footnote number 11 Employees/contingent workers of Wells Fargo Bank, N.A., its affiliates or subsidiaries, and family members residing with them cannot purchase any property managed by PAS.
Footnote number 22
The home equity line of credit Annual Percentage Rate (APR) is variable and is based on the highest Prime Rate published each day in The Wall Street Journal Money Rates Table (the "Index"), plus a margin. The Index as of the last change date of December 17, 2008 is 3.25%. As of August 14, 2015, current margins for lines of credit from $10,000; maximum $500,000 secured by owner-occupied properties with 70% combined loan-to-value range from 4.500% to 0.250% resulting in corresponding variable APRs ranging from 7.750% to 3.500%. The minimum line of credit amount is $10,000 ($12,000 in North Carolina). For larger loan amounts, please contact us. Minimum APR is 1%. Maximum APR (Lifetime Rate Cap) will be the lesser of 18% or 7% above the initial APR. During each year, the APR will not increase more than 2% during the 12 months following each anniversary date (Annual Rate Cap). APR does not include costs. Your APR will be based on the specific characteristics of your credit transaction, including evaluation of credit history, CLTV, property type, amount of credit, term, and geographic location. There is a $75 annual fee which is waived for the first year. If provided for in your original contract, the fee will be waived thereafter if you maintain a minimum average daily balance of $20,000 or more for twelve consecutive months previous to the annual fee assessment date. The prepayment penalty fee will be $400 for lines of credit $20,000 or greater. There is no annual fee or prepayment fee for accounts secured by Texas homestead properties. Opening fees may be paid to Wells Fargo, its affiliates, or third parties and range from $19 to $9,000 depending on the property type, the state in which the property is located, and the amount of credit extended and include applicable state or local mortgage taxes. This Account has a Draw Period of 10 years plus 1 month, after which you will be required to repay any amounts within a 20-year term, depending upon your account balance. Hazard and, if applicable, flood insurance required.
Footnote number 33
A PriorityBuyer® preapproval is based on our preliminary review of credit information only and is not a commitment to lend. We will be able to offer a loan commitment upon verification of application information, satisfying all underwriting requirements and conditions, and providing an acceptable property, appraisal, and title report. Preapprovals are subject to change or cancellation if a requested loan no longer meets applicable regulatory requirements. Preapprovals are not available on all products. See a home mortgage consultant for details.
Footnote number 44
A prequalification lets you estimate how much you can borrow to buy a home, does not require a credit check, and is not a commitment to lend.
Footnote number 55 The interest on any portion of credit greater than the fair market value of your property is not tax deductible for Federal income tax purposes. You should consult your tax advisor regarding the tax deductibility of interest and charges.
Equal Housing Lender