What you need to know about short sale homes
Are you the kind of person who is always looking for a deal, or maybe a way through the back door? If so, a short sale home may help you buy a home for a lower price than through a traditional home sale.
What buying a short sale home means
To understand what it means to buy a short sale home, we first need to define how a home falls into the short sale market. A short sale occurs when someone sells their home for less than what they owe on their mortgage.
How are short sales different than foreclosures?
Short sales are different than foreclosures in that during a foreclosure, the lender or a third party purchases the home and the homeowner may be evicted.
How to buy a short sale home
Still interested? Here’s where to begin.
The seller’s to-do list
Before selling a short sale home, the seller must seek approval from the lender.
The buyer’s to-do list
The advantages and disadvantages of buying a short sale home
- Seek out short sales in your desired area. You can find applicable homes using a qualified short sale home agent, typically by searching online or looking through local public courthouse files.
- Research home values. Based on the above research, if the seller owes more on the home than it is worth, this means they don’t carry any equity.
- Go and visit the home. Assess the quality of the property and get a sense of how much you’ll need to fix up and estimate the costs so you know what you’re getting yourself into.
- Sort out liens and outstanding items with the lender. Before committing yourself as the official owner, make sure all of the loose ends are tied up so that you’re free to move forward once the sale is official.
- Present paperwork and negotiate terms. Whether it’s a short sale application, the seller's paperwork or your financing plans, get everything together to submit to the lender. A lawyer or real-estate agent may be able to assist. Since the lender is agreeing to sell the home for less than the original purchase price, be prepared to negotiate and determine the maximum you’re willing to pay.
- Shop around and prequalify for a mortgage. Presenting your financing to the seller and lender proves your financial capabilities and can help expedite the process.
- Sign on the dotted line. Once the seller, buyer and lender are aligned, you can officially sign the papers, transfer the title and close on the property. Congratulations on being a new homeowner!
The advantages and disadvantages of buying a short sale home
As you can see, buying a short sale home has a few more steps than going the traditional route but can come with certain perks. As a buyer, you may be able to get a home for less than its appraised value.
The main downside of buying and selling a short sale home is that the deal often falls through. The seller's lender may not agree to list it as short sale. As the buyer, short sale homes are usually fixer-uppers, meaning you’ll likely have a lot on your plate once the deal goes through.
Buying a short sale home is a unique way of doing real estate but can be worth the team effort and compromise for all parties in the end.
