Buying a home is through a short sale
similar to buying a foreclosure, but the two processes aren't
In the event of a short sale, the bank may or
Mortgage lender does not evict the homeowner. Instead, the lender lets that
The current owner is selling the home for less than his mortgage debt.
The advantage of buying a short sale is that you could find one
a house at a reduced price.
But the process can often be time consuming and
frustrating and having short sale transactions
unique dangers. Also, there is no guarantee that you will save money compared to a
Here's what you need to know in order to buy one
Short sale home.
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What is a short sale?
A short sale transaction can take place if a
The homeowner's mortgage loan balance exceeds the market value of their home.
In other words, the home's market value is less than that on the market
Mortgage. This is also known as "underwater" or "negative equity".
In the case of a short sale by the homeowner
has to sell his underwater house – and the mortgage
Lender gives permission that the property can be sold for less than that
The lender will lose money, but he agrees
selling the property to avoid foreclosure that could
cost even more.
In a way, a short sale can help
both the lender and the homeowner. And it also helps you, the home buyer, if you can
can get a below market deal on the property.
The short selling process
The short selling process is a lot
like buying a house from the market.
You start by finding and getting a home
Pre-approved for funding (unless you are paying in cash). Then you do one
offer, negotiate and close the sale.
But in each of these phases there is
unique challenges for short sale houses. Here's what you need to know:
Step 1: find a short sale home
Given the complexity and the risk
In the context of short selling, we don't recommend going it alone unless you have
a lot of previous experience.
Though you might look
If you are using a Multiple Listing Service (MLS) yourself, it is better to hire a real one
Real estate agent with experience in short selling.
A good agent will check the title
Find out if a foreclosure has been filed and how much it is
owed to the lender. This data will help you create a competitive offer.
The agent also helps
You negotiate the best offer and overcome all obstacles to a successful deal.
Note that the short sale can take a lot longer than one
traditional house purchase. Even with a qualified agent, this is not uncommon
Short sales transactions take six months or more to complete.
Step 2: Get Pre-Approved for Funding
Unless you're paying for a short
Selling real estate with cash. Your first step is to get pre-approved a mortgage.
It is a must-have. Without funding
On the spot, a bank is likely to reject your offer immediately.
Fortunately, pre-approval is relatively quick and easy.
Many lenders can verify yours
Credit score and financial documents in
only one day. Then they will write you a pre-approval letter giving you the opportunity to register
credible offer for a house.
Start Your Mortgage Pre-Approval (Jan 16, 2021)
Step 3: make an offer
Your third step in buying a short
Selling a home is a competitive proposition. Though you may be able to buy below
Sticker price, don't count on it. Instead, make a reasonable offer based on the
A real estate agent who knows your local housing market can
Show comparable properties ("comps") that were recently sold so that you can
make a realistic offer.
A good package deal for a short one
A sales contract for you and the seller to signA serious cash deposit. A substantial down payment shows the listing agent and the bank that you are a serious buyer. When the deal is closed, the deposit becomes part of your depositA pre-approval letter to prove that you have the opportunity to purchase the property at the offered priceInformation on current sales prices For similar properties in the region ("Comps"), the evidence of your suggested price is realisticProof of funds – This may be necessary if a pre-approval letter fails to convince the seller that you have enough cash. Proof of funds can include copies of bank statements, as well as credit lines and certified financial statements
Start of negotiations with a
Low-ball offer probably won't work in your favor. A lender may decline your offer
Might have low ball deals to make
worked during the last recession when lenders were desperate to mitigate theirs
Losses. But salespeople can afford to be more demanding now.
Indeed, underpricing is
Main reason banks reject short sale offers.
Another common reason for
Rejection is an incomplete offer that does not contain all of the required offers
So make sure you have yours
Paperwork fine before trying to buy a short sale home just like you
would buy for anyone else.
Step 4: Negotiate the short sale and the contingent liabilities
You and your agent should also prepare a short sale supplement with certain contingent liabilities.
“Contingent Liabilities” are conditions that must be met before the home sale is completed.
For example, you may want to base your offer on lenders' approval of the sale, how long you wait for the short sale to be approved, and the amount you pay for closing costs.
You also likely want a short sale to be dependent on the results of a home inspection.
Whatever you do, don't buy a short sale home without first having the site inspected.
You may even want to hire specialist inspectors to look for costly issues like termites, mold, and structural damage.
Note: Short sale houses are sold "as is".
Remember to be short
an "as is" purchase.
Unlike normal home sales, you
shouldn't expect the seller to go down
the asking price if your home inspection reveals
Problems. It rarely happens.
But an inspection can still be carried out
Uncovering deal breaker issues that may be holding you back from buying the home.
If you are smart and determined
It is possible for buyers to find short sale bargains. Once you find one, a
A successful result can definitely be worth it.
How long does a short sale take?
A California-based agent has estimated that it takes an average of 60 to 90 days for a lender to approve a short sale – after receiving the full offer.
However, this is only an agent's guess. The actual timeframe for a short sale can vary widely.
The time to close depends on where you live. It could take a lot longer if multiple lenders are involved. And 60-90 days is just an average, which by definition means some will take less time and some will take more time.
The variables are so extensive and complex that a real estate agent specializing in short sales can only estimate the time from listing to closing – even if they fully understand the facts of your case.
Obstacles To Expect During The Short Selling Process
Three common obstacles can do
A short sale takes longer than a traditional sale – or does
prevent the transaction altogether.
Multiple debts are owed. If the homeowner has borrowed from multiple lenders, the “junior pledges” can block the sale. These lenders often get little (or no) money from short sales. An example would be a home equity lender who secured the home after taking out the original mortgage debt The seller could cancel the deal. This sometimes happens when the home lender asks the seller to contribute to the closing costs and the seller is reluctantThe bank accepts a competing offer. This can happen even after you've made a serious cash deposit and paid for a title search, home inspection, etc.
Because of these unique pitfalls
It is especially important to know what you are getting yourself into when you start the program
Short sale process. And you most likely want an expert like one
experienced real estate agent at your side.
Who Should Buy a Short Sale Home?
There are often challenges and
Delays in buying a short sale home – which is why a disproportionate number
Short sales are taken care of by professional property developers and
These potential buyers are not
emotionally invested in the transaction and can catch delays up to
You pay the purchase price and take possession. You may not care much, even though
The deal falls apart when there are several others in the pipeline.
This is different for individual home buyers
looking for a place to stay because they could
be in a difficult position when the sale fails.
Perhaps you are well placed to wait
close a short sale and these pitfalls wouldn't be a challenge for you.
But there's a good reason so many private buyers leave short selling to the pros.
Pros and Cons of Buying a Short Sale Home
The biggest advantage of buying one
Short home selling is the chance to find plenty.
And unlike a foreclosure, a
Short sale home is likely in good shape. Often it is
The current owner will continue to be in the apartment and maintain basic maintenance. A
In contrast, the foreclosure could be in bad shape.
Many of the challenges in the short selling process stem from one fact:
The homeowner does not make any decisions about the short sale transaction.
It's the mortgage lender who
holds the house and oversees the sale.
There could even be multiple lenders if the current owner has a second mortgage.
like a home equity loan or a home equity line of credit (HELOC).
Some home buyers choose
endure short selling complications because they might buy from you
Price offer. However, you should be fully aware of the potential problems beforehand
considering a short sale.
Short sale houses can be hard to find
To need a short sale, a
The homeowner must have negative equity – that is, the home's mortgage
The credit is higher than the value of the property.
After the collapse of the real estate market that began in 2008,
Many homeowners have found themselves underwater on their mortgages. It meant
many more homeowners qualified for short sales.
The situation has changed dramatically since then. At home
Values have recovered and are continuing to grow in most markets. Now with
The interest rates are so low that more homeowners in trouble can afford to keep theirs
Homes through refinancing.
To qualify for a short sale, a homeowner must also provide evidence
financial difficulties. A seller may even need a hardship letter or pay for stubs
to prove that he or she may not be able to catch up and avoid mortgage payments
become a REO property (foreclosure).
Dr. Frank Nothaft is the chief economist at CoreLogic, a company that tracks real estate markets and mortgages. He explains, "Ten years ago, in the depths of the Great Recession, more than 11 million homeowners had negative equity, or 25% of their mortgaged homes."
But: “After more than eight years
Rising house prices and employment growth, underwater owners have been cut
on only 2 million or less than 4% of the homes mortgaged. "
So today there is a lot less
There were more opportunities than before for savvy buyers to use short
However, these options do not exist
completely dried out. There may still be good offers for determined buyers
The short selling process can have long delays
Short sales are often quoted lower
Priority over traditional sales. That's because the paperwork is
processed by a lender who knows they have already lost money
Sometimes it takes weeks or even
Months until a short sale offer is accepted or rejected. Or the lender can
Make a counter offer. In this case you can refuse, accept or
Counter back – this involves restarting the process from the beginning.
If second mortgage lenders or "junior lien holders" are involved,
Delays can be stretched beyond perseverance as they have to buy their way into each one
The National Association of Realtors describes some of its members' experiences with short selling:
“As a result of these challenges
Our members have reported problems with: unresponsive lenders; lost
Documents that require multiple filings, inaccurate or unrealistic at home
Value reviews and long processing delays that cause buyers to walk
That doesn't mean everyone will
have had such a painful experience buying a short sale but it's important to bet
Your expectations are realistic.
Buying a short sale will be likely
more difficult than buying a house on the market.
What happens to the original homeowner after a short sale is completed?
For the home seller, a short sale means the end of a
long and stressful journey. Home ownership did not go as planned. The owner
I couldn't afford the mortgage payments because of job loss or illness
another unplanned circumstance.
The owner may have tried to refinance but also couldn't
because of credit report problems or lack of income. The original homeowner
may have unsuccessfully applied for loan modification programs.
To avoid losing the home to foreclosure, the owner must
successfully appealed to the lender for a short sale transaction. But there
So he or she lost control of the sales process and any ability, ever
claim back the down payment or additional equity.
The lender's damage control department is now deciding
After a short sale, the lender can
Forgive all of the debt even though the sales proceeds did not pay off all of the debt
In other cases, the lender can pursue it
Defective judgment against the borrower by the courts in an effort to obtain the
Shortfall. A homeowner asking for a short sale should try to get a waiver
Prevent the lender from trying to get back the lost money in the future.
The homeowner's credit is
destroyed for a while, but it will usually recover more
faster after a short sale than after a foreclosure.
For example a homeowner who owns the house through a
Short sales can always buy another home through the FHA loan program
he or she meets the lender's underwriting criteria.
However, after a foreclosure, the FHA has to wait three years
Time before buying another home. Freddie Mac and Conventional Loans
Fannie Mae has to wait seven years for borrowers to have foreclosure
Is it worth buying a short sale?
For now, the days of the easy harvest
of short sales are over. Get houses in pre-foreclosure and foreclosures
harder to find too.
Right, you can still find a lot
profitable business with a short sale. But you have to work harder and
smarter to hunt them down.
And that is highly recommended
You are working with a professional agent who has a lot of short sales
If you are interested in buying
Short home sales, you still need to be pre-approved for financing. This step,
At least you can start here.
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