What is a short sale?A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is
What is the difference in buying a Short Sale vs by Foreclosure?
What is a short sale?
A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in other cases the homeowner must make arrangements with the lender to pay the remaining balance of the mortgage. Since a short sale generally costs the lender less than a foreclosure, it can be a viable way for a lender to minimize its losses. A short sale can also be the best option for a homeowners who are “upside down” on mortgages because a short sale may not hurt their credit history as much as a foreclosure. As a result, homeowners may qualify for another mortgage sooner once they get back on their feet financially.
I'm in the market for a home and I think I want to buy a short sale or a foreclosure. Tell me what that means for me?
The common factor between a short sale and a foreclosure is the bank (or lender) is involved in the decision making process of If, when and how the home may be sold. But other than the lender being involved, there are some major differences between purchasing a short sale and purchasing a foreclosed home. Continue reading for some key differences between the two.
In a short sale, the individual owner(s) still technically own the home. The owners have a balance on their mortgage that is more than what the home is worth. The sellers are "short" the amount of money needed to pay off the balance of their mortgage upon the sale. So even though the individual still own the property, they need a third party approval from the bank in order to sell the property at a lesser amount that what is owed. So in a short sale, the seller must approve the sale AND the lender must approve the sale.
A "short sale" can (and probably will) take a long time. Short sales take a lot of paper work, explanations, appraisals, mulitple departments reviewing the file and a host of other things that slow down the process. It is a tedious process and if you have a timeline in which you must be in a home......a short sale is NOT for you. If you do not have paitience, a short sale is not for you. I've seen scenarios where the bank can respond within just a couple days and some that respond in 30-60 days. I've actually had some offers that have never gotten a response back from the lender. However, in most cases, my buyers just get tired of waiting, see new listings that come available and forget about the short sale and just move on. There is the rare occasion where homes are sold with an "approved short sale" price that the lender is willing to take. An offer at that price will be an offer that the lender and seller should approve and, in this scenario, should speed up the short sale process.
A home that is has truly been foreclosed on and has finished the foreclosure process can have a much easier process to purchase. Although the purchase process will differ from foreclosure to foreclosure, as the buyer, you are dealing with the lender (who is also the seller of the home) directly and usually their response time to offers are more immediate (compared to a short sale). In addition, you can expect the seller to agree to pay some portion of closing costs on a foreclosure. However, what you should expect are slightly different terms and timelines once you are under contract. Although the initial contract used to make the offer on a foreclosed property may be standard, it is highly likely that the seller will require you to sign an addendum that will materially change the terms of the initial contract you submitted. These changes are designed to protect the seller. So it will be important to reivew the terms in the addendum closely with your agent prior to moving forward with the purchase. You should be able to take the time needed to inspect a foreclosure, however it is unlikely that the seller will favorably respond to requests for repairs. For this reason, the type of financing you are preapproved for you could be very important when purchasing a foreclosed home.
What are some benefits of buying a short sale or a foreclosure?
Patience can pay off. Often times purchasing a short sale and a foreclosure means you will walk into your home with some equity. The price you will pay will be lower than what the home would have cost if it was a market sale. The amount of equity you have will depend on the price you ultimately paid for the house or how much you upgrade and improve the condition of the home. It's possible that you can increase the equity even further very quickly and can turn around sell the home for a profit.
For more information and insight into the purchasing a short sale or a foreclosed home, give me a call at (803) 409-9737 or feel free to send me an email at firstname.lastname@example.org. Finally, if find yourself behind on your mortgage payments and think that a short sale may be your option in order to prevent a foreclosure, please contact me immediately.