Mortgage 101: Everything You Need To Know About Short Sales
Looking for a Bargain Price on a Home?
If you’re on the hunt for an affordable home to purchase, then you’ve probably heard that short sales are a smart way to get a great deal. And that’s often true, but the short sale process is not without potential pitfalls for buyers. So what is a short sale exactly, and how does it work? What are the pros and cons for buyers, and whom should they consult for assistance in the short sale process?
What Exactly Is a Short Sale?
When a homeowner ends up in a situation where they owe more on a home than it’s currently worth, and making the mortgage payments is no longer an option, it’s time to make a decision. Assuming other stopgap measures have failed, they can either let the home go into foreclosure, or they can avoid the foreclosure process and sell the home for less than they owe. This second option is called a “short sale.” Beleaguered homeowners often opt for a short sale because it has the potential to absolve them of some or all of their mortgage debt. If the lender is willing to cut its losses and let the homeowner off the hook for the remaining debt, short sales are less damaging to credit ratings than foreclosures. Why would lenders agree to accept less than they’re owed? Well, the foreclosure process is expensive and time-consuming, so they often come out ahead by sidestepping the foreclosure process and accepting a short sale as an alternative.
Short Sales Can Take a Long Time
Don’t be fooled by the name; short sales can be a rather extensive process. Unlike a foreclosure, wherein the bank owns the property, the seller is involved in the short sale process. Before you can purchase the property, the seller has to prove legitimate financial hardship and negotiate a deal with the bank. Meeting the bank’s criteria can be an extensive process, and as a result, short sales can take 4-9 months or more.
How to Purchase a Short Sale Home
For all their potential pitfalls, short sales can be great deals for budget-conscious home shoppers. If you’re interested in purchasing a short sale, there are a few steps you’ll need to take to start the process. First, you’ll want to find a real estate agent who is well versed in the short sale process. It’s different than a traditional home sale, and you want someone in your corner who knows the ins and outs. Next, start researching short sale properties. Your real estate agent should be able to help you find them. Generally speaking, if a property information sheet indicates that purchase offers must be approved by the lender, it’s a safe bet that the property is a short sale.
Getting Help From the Professionals
Once you’ve found a property that you’re interested in, it’s a good idea to have a title officer do a title search in order to find out how many liens there are on the property. Struggling homeowners may have multiple liens, and the more lienholders there are, the more difficult it will be to close the deal. You’d also be well advised to have the home inspected, and to accompany the inspector for the walk-through. Short-sale homes have often been neglected, and they’re more likely than other properties to have serious issues. In many states, the lender is exempt from providing the usual disclosure statements, and while sellers are required to disclose information about the property, they may fudge some of the details to make the property more attractive to potential buyers.
If after a title search and inspection you still think the property is a good investment, then you can make an offer. If the bank feels that your offer is close enough to the home’s appraised value that it makes sense to sell the property rather than initiate foreclosure, your offer may be accepted. If your offer is not to the bank’s satisfaction, you may receive a counter-offer. If not, you may place a higher bid, or if you’ve already reached your upper limit, you may decide to find another property that interests you.
Are Short Sales Right for You?
Short sales can be lucrative, but they’re not for everyone. If you’re going to purchase a short-sale home, you’ll need to be patient. Banks prefer well-qualified buyers who are ready, willing, and able to close on short notice, so you’ll want to have your financing in order. Also, the fewer contingencies you have, the better. Lenders prefer flexible closing terms when completing short sales, and they don’t want to have to wait for you to sell your previous home before the deal can go through. If you fit the bill on these criteria then you may be a good candidate for the short sale process.
Happy Short Sale House Hunting!
Purchasing a short sale can be an arduous process, but it can also end up being a win-win for all parties involved. Whether you’re a homeowner needing to get out from under a mortgage, or a house hunter looking for a great deal, we wish you the best of luck!
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