1. Updated proof of funds letter: Unlike with traditional sellers, it is very rare that a bank will accept an offer with lender financing. They have been burned too many times by offers that never close and drag the process out for months. They usually focus on cash offers. The starting point for your REO offer should be a proof of funds letter. This is the document or statement showing exactly where your closing money is coming from. It is important to make sure that your money is in a liquid account that you can draw from at any time. If a lender sees sufficient capital, but it is an account that could cause a delay, they will look elsewhere. Most investors keep a proof of funds on their laptop or somewhere they can quickly retrieve it, but this letter needs to be updated before submission. A proof of funds letter dated two months ago does nothing to improve your chances of acceptance. Make sure this letter shows enough funds to cover the transaction, and includes the date of your submission.
2. Review your contract: When hurrying to get your contract submitted, it can be easy to omit certain items. Even one missed signature or initial can cause your offer to be pushed to the side. The contact you submit will be reviewed by loss mitigation line by line. Double check that the name you use on the contract is the same as the one on the proof of funds letter. Find out before you submit if you can close in an LLC, or if it has to be a personal account. You should also look for all signature pages and make sure everything is dated properly. There are more important items on the contract such as closing dates, contingencies and down payment amounts, but unless your contract looks clean the lender will never get to those.
3. Close quickly: Aside from price, the most important consideration for lenders is the closing date. Every day that they own the property is costing them money. They want the liability off their books as quickly as possible. Unlike traditional purchase transactions that last 45-60 days, REO purchases should close in a week to ten days. A speedy closing date shows that you are serious about the transaction and ready to act. Lenders will often take the path of least resistance in getting a property sold. This doesn’t mean you can offer ten percent less than you would, but a quick, cash closing does have value. You need to be ready to act and close as quickly as possible.
4. Large down payment: A cash offer and quick closing is typical in today’s market. To make your offer stand out, you need to increase the down payment amount on the contract. The typical 3-5 percent that you put for other properties may not be enough to get it done. If you bump the deposit up to 10 percent, you show the lender you are more serious. Knowing that you stand to lose more money, you have more incentive to keep the deal going and close as quickly as possible. If all other things are equal, a larger down payment may just be the thing that pushes your offer over the top.
5. Fewer contingencies: One of the surest ways to get your offer accepted is to waive the inspections. This, however, is not for every investor and nor should it be. Before you consider this tactic, you need to have the property inspected by someone that knows what they are doing. You may have bought a dozen properties, but all it takes is one oversight to purchase one you regret. By waiving inspections, you can close virtually overnight after acceptance. Doing this is a risk for a buyer because they have no recourse if something pops up after the closing. Because of the risk factor, you may be able to get a reduced offer accepted. If you know what you are doing and are comfortable with the risk, waiving contingencies will definitely give your offer a leg up.
REO properties have increased in popularity over the years. In the past, if you had a cash offer you had the upper hand and could buy a variety of properties. In today’s market, there is much more competition, so it is important to do the little things in every area of your offer. REO properties can be real home runs, but you need to act quickly and execute every step of the way.