Tips for the First Time Home Buyer: Pros and Cons of Purchasing a Short Sale

Buying a short sale is becoming more and more popular for investors and those looking to buy their own house. A short sale takes place when the owner of a house gets in financial trouble. They negotiate with their lender and the lender agrees to let them sell the house for an amount that is less than the mortgage balance. While a short sale can be beneficial to all parties involved, there are also downsides.

Pros

  • Save money- The biggest advantage of buying a short sale is that you get to save money. Sometimes, you can save a substantial amount of money on your house. Anytime you can get a house for less than market value, you will be in good shape. It is like starting out your mortgage ahead of where you should be. Purchasing a house is usually an expensive proposition and will be the biggest investment that most people ever make. Therefore, saving a few thousand dollars on the price of the house can go a long way. 
  • Lower mortgage- When you save money on a short sale, you will have to borrow less money. This can help you by providing you with a lower mortgage payment. This will benefit you for the next 30 years and make your monthly budget much easier to make. 
  • Instant equity- When you buy a house for less than what it is worth, you are creating instant equity. This can come in very handy when you are in need of some quick cash. If you buy a $200,000 house for $160,000, you now have $40,000 that you can use with a home equity loan if you need to. It's nice to have an emergency source of funds lying around. 

Cons

  • Be prepared to wait- While some short sales go quickly, the vast majority of them take a long time to complete. Anytime you deal with a bank, they will take their time before making a decision. They will have several people look over the offer to make sure that it fits within their guidelines. Then if it fits their criteria, they will go ahead with the transaction. The process can be difficult to wait for when you are in a rush. Lenders can take as long as 4 to 6 months to accept an offer.
  • Bank approval- Another thing that makes short sales difficult to handle is the need for bank approval on the purchase price. The real estate agent usually helps pick the list price. Then you make an offer on the house based on that price. The seller will usually accept the offer, but the bank needs to sign it off as well. Sometimes, banks can change the terms of the offer completely, leaving you without a deal.