If you want to invest and purchase a house and search to buy it at a lower price, consider short-sales homes. It is a safer option for sellers and lenders than foreclosure since the properties are frequently valued at a lower market value.
However, short sales homes are more complicated than traditional home sales and might be more risky.
Before you decide if the short-sale homes are best for you, continue to read below to understand what it is all about and the steps in buying one.Get A Free Mortgage Quote
What Are Short Sale Homes?
These properties are sold by homeowners below the amount they borrowed on their loan. Typically, this occurs when the homeowner faces financial problems and cannot pay and keep up with their loan payments. In selling the home, homeowners must secure the lender's approval since the sale proceeds will only include part of the loan amount. There are two (2) choices for the lenders if the sale amount cannot cover the loan: either they forgive the outstanding amount or ask the borrower for a negotiable instrument like a promissory note or repayment plan.
The variance between what the homeowners owe on the loan and what the property sells for is termed deficiency. Therefore, homeowners must determine if the lender will assume to settle this deficiency after the short sale or will forego it.
How Do Short Sale Homes Work
Three (3) parties are involved in the short sale home: the seller, lender, and buyer. These three (3) must agree on the terms and conditions of the short sale. One state can be that the lender can ask for a property appraisal to limit the losses. And if the lender assesses that the offer might be too low, he can turn it down. On the other hand, the homeowners can also turn it down if they disagree with the terms and conditions.
Conditions of Short Sale Homes
Homeowners can enter their properties into a short sale once they can no longer afford the loan payment.
And instead of having its foreclosure by the bank, homeowners will take the initiative to apply a short sale to the lender.
Two (2) things are taken into consideration for the approval of the lender:
First, the home's value should be lower than what the homeowners owe. To verify this, the lender will check the current sales of identical properties.
Second, it is a must that homeowners prove that they are facing financial difficulties. They must show no assets or finances to repay the outstanding loan amount.
Advantages of Short Sale Homes for Buyers and Sellers
- It has a potential for a Lesser Value. Often, buyers can buy the property at a lesser market value, which can result in potential savings on the cost of the property.
- It can be flexible, leaving room for negotiation. This can allow the buyers to gain more favorable terms and conditions on the short sale.
- It can decrease the competition. In short-sale homes, there might be fewer competing buyers, which means there is more chance of successfully obtaining the property.
- There is little risk than foreclosure. Compared to foreclosure, properties under short sales are usually well-maintained, thus decreasing possible refurbishment and repair costs.
- It can prevent foreclosure. The short sales can be a substitute for foreclosure of the property, which can adversely affect the credit standing of the sellers and their upcoming financial plans.
- It can protect the credit score. Though the short sale will still affect the seller’s credit score, the harm is typically less than a foreclosure.
- Sellers can have control over the sale of the property. This includes the selection of the buyer and determining an acceptable selling price.
- It can provide possible debt forgiveness. In certain circumstances, some lenders forgive the outstanding loan debt, which releases the seller of their financial problem.
- It can prevent legal troubles. The short sales include fewer legal worries, which can help the sellers prevent possible litigations associated with the foreclosure of the property.
Are Short Sale Homes Same as Foreclosure?
They are entirely different in real estate processes. In short-sale homes, the homeowner initiates and chooses to sell their property for a value lower than what they owe on the loan. The procedures need the lender’s approval and may comprise dialogues. The seller’s credit standing may have a lesser effect than a foreclosure. While in foreclosure, the creditor possesses the unpaid property while the homeowner evacuates for lost loan payments. Usually, there is no room to negotiate, and it can have a more harmful outcome on the credit score standing of the seller.
Steps in Buying a Short Sale Homes
If you decide to purchase a property through a short sale, below are some steps you can take.
1. Look for a real estate agent. You can begin by searching to work with a professional real estate agent who thoroughly understands the ins and outs of short sales.
2. Obtain pre-approval of the loan. This is for you to know how much you can afford to purchase the property, and it will prove to the sellers that you are a determined buyer.
3. Research on the listings for short sale. You can search properties in the areas you desire under the short sale on several real estate websites.
4. Prepare an offer. Once you find the right short sale, you can prepare and give a request to the seller. However, it is dependent on the approval of the lender. In waiting for the approval, you must be patient, as your offer will be subject to review and may take weeks and even months.
5. Conduct property inspection. When your offer has been approved, carry out a complete assessment of the property to determine any possible concerns.
6. Repair negotiation. After a complete property inspection and if there is a need for repairs, discuss and negotiate with the seller or lender the needed repairs.
7. Obtain needed financing. If you purchase the property through financing, you must complete the loan and any needed financing preparations.
8. Finalize and seal the deal. Once all the terms and conditions of the sale have been fulfilled and you have secured the lender’s approval, it is time to finalize and seal the sale transactions.
9. Settle In. After finalizing and closing the deal, you can move and settle into your new short-sale property.
Why Should I Choose Short Sale Homes?
One of the most substantial benefits of the short sale is the buyer’s possible savings because the homes are usually priced at a lesser market value. It also involves fewer risks than foreclosure, which can severely affect your financial and credit standing. In a short sale, there is an opportunity for negotiation with the lender, possibly getting favorable terms and conditions. Furthermore, properties under short sale usually are in an excellent state than foreclosed properties, which can lessen the buyer’s worry about possible costly repairs and renovations. Likewise, not only the buyers can benefit from the short sales but also the sellers. They preserve more control over the sale process, including choosing a potential buyer and determining an acceptable selling amount.
The short sale homes can provide a favorable perspective for both the buyers and sellers. It gives possible savings, a means to prevent the severe impact of foreclosure. There can also be negotiation. However, tackling short sales with cautious preparation, persistence, and expert guidance is essential. Therefore, It is recommended to seek a reputable company's advice to help you explore your options in choosing a short-sale home.Get A Free Mortgage Quote