Short sales are all the rage in the real estate market now… for the good and the bad. A “short sale” occurs when a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing. Many home owners are finding themselves in this situation due to a number of factors, including job losses, illness, divorce, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.
A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.
You’re a good candidate for a short-sale purchase if:
- You’re very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for both lenders to approve the sale.
- Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure. Lenders will allow for FHA financing but make sure you can demonstrate that your loan is set with a reputable lender.
- You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.
Part II will focus on the main issues you will need to consider prior to making an offer on a short sale
Part III will focus on the experts you will need to surround yourself with during the purchase process
Information in this post was provided in part by the National Association of Realtors