What You Should Know About Buying a Short Sale Home
For sellers, a short sale is not an ideal way to sell a home. But for buyers, it may be a great way to snag a great deal on a home. That said, a short sale is not exactly like a conventional sale, and there could realistically be a few hurdles for buyers to have to jump over before this type of real estate transaction comes to a close.
If you’re considering buying a short sale home, get familiar with the process and understand the potential obstacles that you may face throughout the process.
What is a Short Sale?
A short sale involves selling a property for less than what is still owed on it. Any net proceeds of the sale don’t fully cover the outstanding mortgage left on the home. Basically, the seller ends up “short” on paying the home loan back to the lender who agrees to take less than the amount that still remains on the mortgage.
This is hardly the best way to sell a home, but it’s still a lot better than foreclosure. Selling short can also help sellers avoid getting dinged on their credit score.
Why Consider Buying a Short Sale?
Obviously, the biggest – and only – reason why buyers would consider purchasing through a short sale is that they can usually get a great bargain on a home. If you happen to come across a property that you love that just so happens to be a short sale at a price that’s under market value, you can realistically snag a good deal.
And since the lender wants to quickly get their money back that they loaned out, they may even be willing to offer you more favorable financing terms.
If you’re willing to accept a potentially long waiting period before the short sale is approved and the deal goes through, you could land yourself a great place at an awesome price.
The Short Sale Transaction
If a seller is in a position to sell short, they will have to prepare a financial package to submit to their bank, which will consist of a variety of documents, including a letter of authorization, completed financial statement, two years of tax returns and W-2s, and a comparative market analysis (CMA), among others.
Before you put in an offer on a short sale property, your real estate agent will pull a list of as comparable sales to come up with an appropriate offer price, which is typical in any offer situation. The price you offer is crucial not just to the seller, but also for the bank, which will want to receive as close to market value as possible.
Some short sales can start before an offer is submitted, but more often than not, the bank will begin the process after they’ve received an accepted offer. The listing agent will then send several items to the bank once the seller accepts the offer, including the listing agreement, the offer, the buyer’s letter of pre-approval, a copy of the deposit check, and the seller’s short sale package. It’s important that this package has everything needed without anything missing, or else the short sale process can be delayed.
As the buyer of a short sale, you should be prepared to wait a long time before hearing from the bank. Since you must get approval from the seller’s lender first, then take the final agreement to your own lender get a mortgage, a short sale can be pretty lengthy.
Every case is different, so there really is no exact time frame within which it will take each short sale to be approved. However, it can take anywhere from a few weeks to even a few months before approval is granted.
The listing agent will have to keep tabs on the bank and call in periodically to make sure the short sale process is proceeding. However, your agent can’t speak with the lender without being authorized to do so.
Just be sure to work with an experienced real estate agent to help you navigate the short sale process, and get pre-approved for a mortgage before putting in an offer.
The Bottom Line
If it’s a deal you’re after, then short sales may have something for you. However, they also come with potential issues that you will need to deal with before you get the keys to your new home. Done right – and with the assistance of a seasoned real estate professional – you can come out a winner with an awesome house at a fantastic deal.
