Let’s say you’re looking to buy your first home. You start doing some research and you begin seeing a term come up that you are unfamiliar with: short sale. Perhaps you have heard the term before, or maybe it’s your first time reading it. Either way, we’re going to give you a little breakdown as to what exactly that means when a home is listed as a short sale.
A short term sale occurs when a homeowner sells a property for less than what they currently owe on the mortgage for that property.
For example, say the homeowner has a home that’s current market value (the most he/she can expect to get from a buyer) is $300,000. However, when he bought the home it was worth $500,000. He put down $50,000 so the loan amount from the bank (lender) is $450,000. So, the difference between what the loan amount is and what he can sell his home for is a loss of $150,000 (450,000 – 300,000). The homeowner is unable to make his payments for various reasons and is either forced to sell or foreclose.
In order for a short sale to occur however, the mortgage lender must not only be informed about the desire to short sale the home, but must also agree to accept the short sale amount in exchange for terminating the loan with the current owner. Some of the reasons that the mortgage lender may actually accept to a short sale enlisted by a homeowner include: (a) the individual(s) who borrowed the money cannot continue to make the monthly loan amount for payment and/or (b) the homeowner(s) cannot afford to pay off the full loan amount upon sale of the home and needs to move out of the home.
In general, a lender’s approval is necessary in order for a short sale of a home to take place. They review evidence and analyze whether or not the buyer is capable of continuing to pay the mortgage payments. The lender also compares whether a short sale would be more beneficial for them VS foreclosing on the property.
Although a short sale is not as beneficial as paying a mortgage in full, many buyers approach this process because they would like to avoid a foreclosure which can carry with it a more significant impact on credit score than would a short sale of the home.
Buying a Short Sale Home
Alright, let us say you’ve found a nice home that is listed as a short sale. What’s the process like to buy it?
When buying a short sale home, it is a different process than buying one that is’t a short sale. One of the biggest factors could be time.
Overall a short sale purchase may take longer than a traditional purchase. This is due to the fact that you and your real estate agent submit a price you’re willing to pay for the home to the lender (and not the homeowner). The lender then must look at all the offers, and decided which is best for them and agree to the price. This can take various amounts of time, anywhere from 30 to 90 days and beyond.
Another thing to keep in mind is that with short sales you may tend to get a better deal yet with that you are more often than not buying the home “as is.” Therefore, it’s important that you and your agent go over the home and point out anything that may need improvements since you’d be the one paying for them. This is all factored in when making an offer.
Overall, while the short sale process is different than non short sale purchases, there are ways to get great deals and move into areas/homes you’d never thought were in your budget. Since they are a bit more complex, we highly recommend seeking the advice of a professional real estate agent.
DIG Homes is here to help you with any questions you may have. We’re experienced with short sale homes and make sure our clients have paid a fair amount and received the home of their dreams. Call us now: (949) 682-9930