Key differences to keep in mind when thinking about purchasing a home
So, you’re toying with the idea of buying a home. If you are an avid fan of HGTV, you’ve probably heard the term “short sale” and “foreclosure” before. Buying a home that is currently in trouble is a great way to get a deal, but not every buyer is cut out for short sales and foreclosed upon properties. Before you decide if this path is right for you, let’s talk about what foreclosures and short sales are.
What is a Short Sale?
A home that is listed as a short sale is a house where the owner and the bank have agreed to put the home on the market for less than is currently owed on the mortgage. These are homes that are in danger of being foreclosed upon, but the owner is given a chance to sell the property for less than is owed on it. Short sales became common after the housing crisis, and remain common even as the market has improved. Short sales are still owner-occupied, and the utilities stay on and functioning. Many find that short sale homes are in excellent shape, and require no more fixing than your average home purchase, but inspections are not allowed, and you are purchasing the home as-is.
What is a Foreclosure?
Foreclosures are homes that have gone through the foreclosure process and are now owned by a bank or real estate company. Foreclosed-on homes are vacant and are no longer attached to the previous owners. In most cases, they may have been vacant for some time, and have had utilities turned off. In the case of foreclosures, you, as a buyer, generally are not offered the chance to walk through the home, or to have an inspection done before your purchase. The house or property is generally listed as-is, meaning you inherent any issues with the house when you purchase the property.
Which is a Better Option?
Both short sales and foreclosure properties can be a fantastic way to get a deal on a house, but you need to know what you are getting into with both options before you start considering properties. Short sale and foreclosure properties both have pros and cons.
If you are looking at buying a home relatively quickly, for example, a short sale is probably not your best option. Short sales take longer to complete, as both the owner and the bank must accept your offer. The short sale process can stretch on for months, and at the end, the bank still has the option to reject your offer. The drawn-out process might force you to miss out on other viable properties while you wait on word. While the process is longer, short sale properties are generally in better condition and don’t require as much work as your average foreclosure.
Each foreclosure tells its own story. In many cases, an owner hasn’t vacated their foreclosure willingly, and the property may be sitting for months or years unoccupied before you come along. Because you generally can’t walk through the home, it may very well end up being a more significant problem than you can handle. There are tons of foreclosed homes that have been completely stripped of their piping, vandalized, or used as party venues for unruly people while they were vacant. While the foreclosure process is much shorter, there are also more unknowns.
The Bottom Line
There are hundreds of thousands of foreclosed properties and short sale homes on the market at any given time. These properties may be sold at a fraction of their actual value and can be a great investment, but there are pitfalls you should look out for when searching such properties. Before you consider a foreclosure or short sale property, do your research and discuss your lending options with a professional at your bank.
Equal Housing Lender