Are You Looking For A Bargain? Maybe it's time to consider a short sale property!
If you have been shopping for a house in today's real estate market, you have probably come across some "short sale" properties. When buyers hear the term "short sale", the common reaction is to turn and run, but if you are prepared, purchasing a short sale can be a great way to purchase an affordable home with lots of potential for building equity.
What is a short sale?
A short sale happens when a homeowner owes more on the mortgage balance than the market value or sale price of the property at the point the owner wants to sell. For a short sale, the homeowner is essentially asking the mortgage lender (typically a bank) to accept a lesser amount than the total mortgage owed.
For example, if the homeowner sells the house for $250,000, but the remaining mortgage loan balance is $300,000, the seller is essentially $50,000 "short" on paying the lender back. That's a short sale.
Before you consider purchasing a short sale, there are some things you should know:
Despite the name, the time frame for closing on a short sale is not short. The current mortgage holder could take months to decide if they will accept or deny your offer. Patience is key when purchasing a short sale.
Most banks will not consider a short sale offer unless the potential buyer provides a pre-approval letter. Having that ready to go could speed up the process and help your transaction move along more smoothly.
There are many types of financing out there. Some types of loans are not suitable for purchasing a short sale. If the property needs work, as short sales often do, they may not qualify for some programs. Programs such as Purchase Plus Improvement Loans (203K) or Rehab Loans are perfect for short sales. Make sure you speak with your lender about the possibility of purchasing a short sale to make sure your chosen loan program will work for a short sale property. Because short sales often take longer than other sales, you may need to update your information with your lender occasionally in order to keep your pre-approval.
If you pay cash for a short sale, you will usually need to provide a Proof of Funds letter from your bank showing that you have the cash available for the purchase before you offer will be considered. Having this ready to go can be helpful in improving your chances of having your offer accepted.
Inspections and Repairs
In most cases your Real Estate Agent can help you write your offer so you can wait until the short sale is approved to do your inspections. While inspections are important so that you know what you are purchasing, keep in mind that most homeowners are trying to sell as a short sale because of a financial hardship and probably don't have money to make repairs. In most cases, you will be purchasing the property "as is".
In many cases, the bank who holds the current mortgage will continue to accept other offers while they are considering your offer. An Real Estate Agent who is experience in short sales can help you try to avoid this situation.
Many properties that are being sold as a short sale are heading for foreclosure. In most cases, an offer on a short sale home does not stop the foreclosure process. Basically, purchasing a short sale property takes patience and organization.
If you are well prepared, understand what you are getting into, want to build some sweat equity and have lots of patience...a short sale could be a perfect way for you to purchase a house at a great price!