Short Sales: What You Need to Know
If you are looking to buy a home, you may have heard that short sales are among the fastest growing property transactions in today's market. You may be wondering: What is a short sale? Is a short sale right for me? And, how do I buy a short sale?
What is a short sale?
When a borrower needs to sell their home but the mortgage balance is greater than the market value of the home, the home may be sold as a "short sale." In this instance, the lender and all parties involved agree to a sale price that is below the mortgage balance owned by the borrower – and the borrower is permitted to sell the home at or near the current market value.
The outcome of a short sale can be positive for all parties:
- For delinquent and current borrowers, it allows them to avoid foreclosure by selling their home for less than the amount owed on their mortgage loan.
- For lenders, short sales offer a way to avoid many of the costly impacts of foreclosure.
- For buyers, short sales can provide favorable buying opportunities as some may be priced at or below market value. Additionally, since short sales are often occupied by the seller, they are typically in good condition.
Short sale transactions can take more time than a regular home purchase because they involve negotiations among the current owner, lender (or lenders if there are multiple mortgages secured by the home), and buyer. Consequently, the first two steps in buying a short sale are to closely evaluate whether or not you are a good candidate to buy one and to find a real estate professional with experience in short sale transactions.
Am I a good candidate to buy a short sale?
This is one of the most important questions you will need to ask yourself before you consider buying a short sale property. Generally, you are in a good position, if:
- You are patient. Purchasing a short sale requires all of the different parties to approve the deal which typically takes several months – sometimes more. However, if the mortgage is owned by Freddie Mac or Fannie Mae, the time period may be significantly shorter.
- Your financing is arranged. It is important that you are approved, or at least pre-approved, for financing once you begin looking at short sale properties.
- You are flexible. If you are flexible with your move dates and do not have to sell a home or break an expensive lease to qualify for financing, you may be a good candidate.
What is the buying process for short sales?
If you believe you are a good candidate for a short sale, you'll want to:
- Get approved, or at least pre-approved. This is an important step in any real estate transaction to help you determine how much home you can afford and show sellers that you're a serious buyer. Because short sales can take time, it is important to note that your approval or pre-approval can expire throughout the process. You'll want to make sure it is always current and that you are financially prepared if the offer is accepted. Learn about the mortgage process.
- Reach out to a licensed real estate professional and begin house hunting! You should consider a qualified real estate professional who has a proven track record in short sale transactions.
- Make an offer. Your real estate professional can work with you to determine a price that you believe is fair. Generally, the most successful offer is one that aligns with comparables in the neighborhood. Keep in mind: you can get a good deal when buying a short sale, but you need to be realistic in the offer you submit to the seller.
- Obtain seller acceptance of your offer. Typically, this is a quick process and takes one to two days.
- Wait for approval of the seller's lender(s). This process may take time due to the number of parties involved in the transaction and patience is key.
- Move forward with closing. If the lender accepts the offer, you will move forward just as you would with any real estate transaction.
A short sale can present you with a good buying opportunity, but because it can be a long process, a buyer with patience and flexibility is required. If you have these characteristics, and are financially secure, reach out to your real estate professional and get started today!
- Learn more about REO or Bank-owned Properties
- Educate yourself about short sale fraud
- Read our blog, Myths About Getting a Home Loan in Today's Market
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