If a home or a condo is being sold for below what the seller owes on the property, and the seller doesn’t have other funds to make up the difference at closing – the sale is considered a Short Sale. Many home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home and declining home values in certain areas in the US.
A Short Sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners ofter try to accomplish a Short Sale in order to avoid foreclosure. Howeverm a Short Sale holds many pitfalls for buyers. Know the risks before you pursue a Short Sale purchase.
You’re a good candidate for a Short Sale purchase if:
- You’re Very Patient – Even after you come to an agreement with the seller to buy a Short Sale, the seller’s lender, or lenders, has to approve the sale before you can move forward. If there is more than one mortgage, with different lenders, it can take months for the lenders to approve the sale.
- Your financing is in order – Lenders like cash offers. Even if you don’t have cash to finance the transaction, it is very important to demonstrate financial stability and financing options. If you are pre-approved, have a large down payment,and can close the transaction at any time, your offer will be viewed more favorably than others. A great way of demonstrating this is to go directly to the seller’s lender, they already losing money on the transaction, so changing the the hands of the loan will bring them some more profits than just giving it away. They will also know that if thy pre-approved you, they can go through with the loan.
- You don’t have many contingencies – The less contingencies you have, the better it is. Normal contingencies are home inspection, mortgage contingency and review of condominium documents. Selling your existing home before you can commit to the sale is not.
If you’re serious about purchasing a Short Sale property, it’s important for you to have expert assistance. You will need an experienced Real Estate Broker and an experienced Real Estate Attorney. Only two out of five Short Sales are approved by lenders, a good team who’s knowledgable about the Short Sale process will increase your chances getting as approved Short Sale.
Benefits of Short Sale purchase:
- Great price – Usually a Short Sale is sold well under market value, if you’re an investor this can be a golden opportunity for you to make a lot of money when the maret turn around.
- Good terms – In some cases, you can get a loan from the seller’s lender at great terms, this can get your high return on investment (ROI) if you decide to rent the property.