Everything you need to know before taking the plunge
When you are ready to buy a home, you are faced with a variety of options from the type of property you purchase, to what processes you are willing to go through to buy the home of your dreams. Homes can be sold in a variety of ways, including short sales. While short sales may seem like an excellent investment opportunity, there are a few things you should know before you begin looking at short sale properties.
What is a short sale?
A short sale is an agreement between a bank and an owner of a property to sell the property for less than is owed on the mortgage. A short sale can prevent the property from going into foreclosure. Not only does it help to protect the current owner’s credit, but it ensures the issuer the mortgage doesn’t incur the lengthy cost of a foreclosure. When a home is foreclosed on the lender assumes all responsibility for the property, including the cost of eviction, any maintenance that needs to be done on the house, and the costs associated with owning a property while they wait for a buyer.
What are the benefits of a short sale to a buyer?
When a lender approves a short sales, they are motivated to get a property sold. In a short sale scenario, a bank has agreed to take less than is owed on the property in order to avoid the inevitable costs of foreclosure. A qualified buyer can get a great price on a property, as long as they are willing to wait.
Because of the bank’s motivation to get rid of a short sale quickly, often those qualified to purchase a short sale will get a more favorable interest rate, meaning you would pay less in interest over the life of the mortgage. The bank may also be motivated to add in extras, like paying for closing costs, if they need the property sold.
What are the negatives of the short sale process?
While scoring a great price might seem like a benefit that outweighs any potential negatives, that is not always the case. Buyers should be aware that short sale homes are almost always sold as-is. That means the buyer assumes the responsibility of all repairs that need to be done to the property. In some cases, the repairs might be minor, but other times repairs are a hefty investment that can drain the new owner of any savings they procured with a great sale price.
The short sale process is also lengthy, as the lender needs to agree to the terms of the sale before it can go through. Short sales can take anywhere from four months to a year, depending on the completeness of the file, the lender’s current backlog of work, and how on-the-ball the listing agent is. If you are looking to move into a property quickly, a short sale is unlikely to be the right choice for you.
Final thoughts
It is important to remember that there are inherent risks associated with short sale properties. As a buyer, you are assuming responsibility for a property that may be in disrepair. You are also taking the risk of losing out on other listed homes while you wait for a short sale approval to come through. Not all short sale agreements end in the purchase of the property. With that being said, the process can be financially beneficial for those in the right financial situation.
Equal Housing Lender