Requirements to Purchase a Short Sale

In a short sale purchase you can get a bargain on an under-valued home. You can also end up mired in red tape, pay too much or own a home that has lost substantial value relative to its neighborhood. Before attempting your short sale purchase, be sure you have these four areas covered

A Legitimate Short Sale

Not all homes offered as a short sale truly are. A short sale occurs when a homeowner can no longer meet his mortgage payments and approaches the lender prior to foreclosure with a short sale request. The lender is under no obligation to accept, but if he does, the home is appraised, listed and will be sold, with proceeds of the sale releasing the homeowner from the mortgage.

Unless you have a lender-approved short sale, you could end up buying a home that still has mortgage obligations. This is particularly true if there is a private second mortgage on the home. 

Be certain both your real estate agent and the listing agent have short sale experience.

Money to Buy at Current Market

A short sale purchase can be a bargain, but it is unlikely to be a very deep discount. When the lender agrees to a short sale, the home will be appraised. Typically, lenders will accept an offer of about 90 percent of a home’s appraised value. That means a very low ball offer likely will go nowhere.

Before your short sale purchase, be certain you know home values in the community you are considering and that you can afford to pay or borrow for 90 percent of the home’s value, at a minimum. The price could be higher if others are putting in offers or if the lender determines he will only accept more.

Time

Do not confuse a short sale with a quick sale.  In almost every short sale, the lender is writing off a loan that exceeds the value of the short sale purchase price. Writing off the loan at a loss requires time for any business to process. Some realtors says it can take from one to as many as six months to close a short sale. 

A Good Property

As stated above, you are investing considerable time and money in a short sale purchase. This requires not only that you have a legitimate short sale, but that you have a property worth buying.

When lenders are offering homes on short sale, it often is an indication of problems in the wider economy. Typically, an economic slowdown accompanies declining housing prices. Be aware of values in the neighborhood. Where are they headed? Where does the home you are considering fit? If values continue to decline, it won’t matter how good a bargain you got.

Finally, get the home inspected to ensure it is in good condition. Homes headed for foreclosure, even those that end up in short sale, often are not maintained as the current owner knows he will not get back any money put into the house.