Purchasing a short sale: Guide to Purchase a Short Sale Property Successfully
A short sale is a real estate transaction where the homeowner is attempting to sell their property for less than what is owed on the mortgage loan. This type of sale can be attractive to buyers looking for a lower price than the current market value; however, due to the complexity of the process, buyers need to know what to expect when purchasing a short-sale property. This article will provide a comprehensive guide to successfully purchasing a short-sale property, from understanding the process and researching properties to negotiating the purchase and dealing with banks.
Steps to buying a house through the short sale process
To successfully buy a house through
Step 1: Identify potential short sales
Short sales occur when the current market value of a home is less than what the homeowner owes on their mortgage. To find potential short sales, you should search real estate listings or contact a real estate agent specializing in short sale properties.
Step 2: View the property
You should assess the property's condition in person and determine if it's worth the asking price. You may decide to hire a home inspector to determine the cost of any repairs or upgrades.
Step 3: Do your research
Research local market conditions and determine whether this property is a good investment. You should also research the homeowner's situation and how they got into it. This will help you understand how to negotiate with the lender more effectively.
Step 4: Find all liens and mortgages
You'll need to know all the property's mortgages and liens. This information can be found in public records.
Step 5: Figure out the financing
You'll need to arrange for financing for the purchase of a short sale. Typically, you'll need to provide documentation of your employment and financial situation along with your loan application.
Step 6: Contact the lender
To purchase a short-sale property, you'll need to contact the lender holding the property's mortgage. You'll have to negotiate with them to reach an agreement on the price and terms of the sale. You must be prepared for negotiations, as this can be lengthy.
Step 7: Complete the lender’s short sale application (if required)
The lender may require that you fill out a short sale application to start negotiations. This application will require your income, assets, liabilities, and other financial information. Make sure you fill out all sections accurately to speed up the process.
Step 8: Assemble the proposal
You will need to submit a proposal outlining your offer and all other relevant documents, such as your loan approval, purchase agreement, and other supportive information regarding your offer. Ensure you include all necessary documents otherwise, your offer could get rejected by the lender during negotiation.
Step 9: Negotiate the terms
The negotiation process may take several weeks, depending on how long the lender takes to review your offer and make a decision. Be patient and considerate during negotiations, as it is important to maintain good relations with the lender throughout this process.
Step 10: Seal the deal
Once both parties have agreed upon all of the details, you will sign all relevant documents, pay closing costs, and complete a final inspection of the property as required by law. When all conditions have been met and all paperwork is processed and approved by both parties, you can officially close on purchasing your new home!
How are short sales different than foreclosures?
Short sales refer to a real estate transaction in which the sale price is less than the outstanding balance of the loan secured by the real estate. A lender must agree to the transaction for it to be allowed. In a foreclosure, the lender returns home because the borrower has defaulted on the mortgage payments. The lender notifies the borrower that they are in default, and then they auction off the property. In a short sale, although the borrower is also in default, they can avoid foreclosure because the lender agrees to accept the amount offered for the home in lieu of what is owed on the mortgage. In addition, short sales usually take significantly less time compared to foreclosures, as lenders typically have the incentive to go through with a sale rather than deal with a long foreclosure process.
How often do short sales fall through?
The number of short sales that fall through is determined by various factors and can vary from case to case. Generally, the chances of a successful short sale depend on the accuracy and completeness of the documents that are submitted to the lender, including a hardship letter, proof of income and assets, comparative market analysis (CMA), and a list of liens. If any of these documents are incomplete or inaccurate, it could increase the chances for a short sale to fall through.
Short sales have a high success rate, provided all paperwork is filed correctly and promptly. On average, most short sales can take anywhere from 2-5 months to close, depending on each lender’s requirements and procedures.
Who should buy a short sale home?
Anyone looking for a bargain should consider buying a short sale home. Short-sale homes tend to be priced lower than the market value, so they can be an attractive option for first-time homebuyers and investors looking to acquire a property at a low cost. However, buyers should be aware that short sale transactions can take a while due to the increased paperwork and negotiation.
Obstacles to expect during the short sale process
- Short sale homes can be hard to find: It can be difficult to find a short sale home as the listing may not always be labeled as such. Even if a property is listed as a short sale, it can take time to submit all the proper paperwork before the sale can go through. Additionally, many short sales will have multiple offers, and the competition for a short sale property can be tough.
- The short sale process can have long delays: Even after the paperwork is submitted, it can take months before the lender approves the short sale. This is due to the lengthy process of negotiating with the borrower and collecting all the necessary information from both parties to come to an agreeable solution. Additionally, many lenders will have specific guidelines and timelines that must be followed, which may create further delays in the process.
What happens to the original homeowner after a short sale is closed?
The original homeowner's situation can vary depending on the details of the short sale. Generally, after the short sale is completed, the homeowner will no longer own the property and will not be responsible for any remaining balance on the mortgage loan. Sometimes, the lender may require the homeowner to sign a promissory note for any deficiency between the sales price and the loan. This note may be due immediately or may include terms for repayment over time.
When attempting to purchase a short sale property, it is important to remember that patience and persistence are key elements. Be prepared to wait for the bank to approve the sale and view the transaction from the perspective of the seller. Educate yourself on the process, network with other investors and professionals, and use your knowledge and resources to leverage a good deal. In conclusion, while purchasing a short sale property can be a daunting task, a successful purchase can be made with the right preparation and strategy. Contact for more information.