Purchasing a Short Sale: 4 Things You Should Know
Purchasing short sale properties involves buying a home for less than the outstanding existing mortgage amount. This type of special purchase arrangement is becoming a popular option for buyers that want to take advantage of low sales prices. Buying a short sale home can be a great value because the property is priced significantly lower than market value. There four things that you need to be clear on before delving into this process, however.
No. 1 - The Short Sale
Purchasing short sale properties is a little different than setting out to put a contract on a house that will have its original mortgage completely satisfied at closing. With short sales, the bank that holds the mortgage agrees to take less than the outstanding balance to get rid of the bad debt. The person selling the home has typically not made their payments on time and the bank prefers to sell the property than foreclose on the home. After an extensive review, the bank balances their books and accepts a sales price that is lower than the mortgage owed. The bank clears the title for the purchase.
No. 2 - The Advantages
If you are buying a home that is a short sale, the advantages of going this route can prove quite attractive. In many cases, a short sale can deliver these perks:
- Low pricing – Short sales typically have pricing that is well below market value. Banks wishing to avoid foreclosure proceedings are often willing to take a sizeable loss, which can be the buyer’s gain.
- Instant equity – If the numbers work out right, the buyer will find they have instant equity in the home purchased. In some cases, this amount can be rather high.
No. 3 - The Work Involved
While purchasing short sale properties can prove to be a financially sound investment, the process is not easy. If you want to buy a short sale property, you will have to deal with the seller, or current mortgage holder on the home, and the bank. The process includes these steps:
- Locating a short sale property
- Obtaining an authorization letter from the homeowner that will enable the mortgage holder to discuss the mortgage with you or your representative
- Contacting and dealing with the mortgage holder’s loss mitigation department
- Completing a short sale application
- Creating the proposal, including a settlement statement
- Negotiating with the original lender
- Finalizing the deal
The work involved with short sales can take a great deal of time. Often, lenders reject first offers and require some back-and-forth negotiations. Also, lenders can be incredibly overloaded and an approval may take six months to get approved. However, the process can be worth the stress, if the price of the home is low enough.
No. 4 - The Bases
Purchasing short sale properties are sod “as is” properties. 'As is" indicates there will be no repairs to the property of any kind and the borrower accepts the home 'as is.' With this in mind, it is a good idea you cover your bases before diving into a negotiation process. Some of the things to consider doing to safeguard your interests and facilitate the process include:
- Obtaining a home inspection so you know exactly what you are dealing with in regard to possible repairs.
- Getting a preapproved loan to speed up financing once a home is located.
- Making sure that a proper title search is done to check for outstanding liens and other obligations.