A Guide to Buying Short Sales
The majority of buyers understand what a foreclosure is and what risks come with purchasing one. However, not as many buyers are familiar with short sales and how they differ.
A short sale is the step that homeowners can take prior to being foreclosed on. Buyers can benefit from buying short sales, but the process is different than purchasing other houses on the market.
What are Short Sales
When a homeowner purchases a traditional home for sale they are working directly with the owner. If they purchase a foreclosure they are working directly with the bank. However, when they purchase a short sale both the homeowner and the bank are involved.
If a seller is not able to continue making their mortgage payment, or they have to move and are not able to sell the house for the remainder of what they owe on it, they can request the lender to allow them to do a short sale.
This simply means that they would be selling the house for less than what is owed on it. The sales price will be short of the loan balance. The lender has to approve all short sales before an offer can be accepted.
Financing Short Sales
Lenders want to see that you are serious when you are making an offer on a short sale. Paying cash will make the process easier, but that isn’t possible for most homebuyers. So, be prepared. Talk to your mortgage lender to get pre-approved prior to making an offer.
Lenders will take seriously those buyers who make an offer with a pre-approval letter and a down payment.
Short Sales Take Time
Since your offer needs to be accepted by both the seller and the lender it can take time. While in traditional sales the seller can accept the offer on their own and on their timeframe, they have to wait on the “ok” from the lender before selling their house and not paying the full balance of their loan. The process could be as short as a few weeks or several months in some cases.
What About Contingencies
Contingencies can often be deal killers when buying short sales. When buying a traditional home for sale you can often negotiate and re-negotiate with the seller to lower the price or have work done prior to closing. However, when the lender is also involved, as is the case with short sales, that is often not possible.
When making an offer on a short sale you usually have one chance. Lenders are not in the game of counteroffers. Since the process of dealing with lenders can be so time consuming you need to bring your best offer from the start; there is not usually time to go back and forth.