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Short sales are a type of real estate transaction where the property is sold for less than the amount owed on the mortgage. This can be a great opportunity for buyers to purchase a home at a significant discount but it’s important to understand the process and the potential risks involved.
In this guide we’ll cover everything you need to know about short sale homes including:
- What they are
- How they work
- The benefits and risks for buyers
- How to find a short sale property
- The steps involved in buying a short sale home
- Tips for negotiating a successful deal
What is a Short Sale Home?
A house that is being sold for less than the remaining mortgage balance is known as a short sale. This usually occurs when a homeowner experiences financial difficulties and is unable to continue making mortgage payments.
How Do Short Sales Work?
When a homeowner is facing foreclosure, they may approach their lender and ask for a short sale. The lender will then review the homeowner’s financial situation and decide whether to approve the short sale.
The homeowner will list the property for sale at a price lower than the remaining mortgage balance if the lender approves the short sale. The lender will then decide whether to accept the buyer’s offer after they make one on the property.
Benefits of Buying a Short Sale Home
There are several benefits to buying a short sale home, including:
- Significant savings: You can purchase a home for much less than its market value.
- Avoid competition: Short sales are often less competitive than traditional home sales, as many buyers are hesitant to deal with the complexities of the process.
- Potential for quick closing: Short sales can sometimes close quickly, as the lender is often motivated to get the property off their books.
Risks of Buying a Short Sale Home
There are also some risks involved in buying a short sale home, including:
- Lengthy process: Short sales can take several months to close, as the lender needs to approve the sale and may need to negotiate with other creditors.
- Uncertainties: There is no guarantee that the lender will approve the short sale, and the final sale price may be higher than the initial offer.
- Property condition: Short sale homes may be in need of repairs, as the homeowner may not have been able to afford to maintain the property.
How to Find a Short Sale Home
There are a few ways to find a short sale home, including:
- Working with a real estate agent: A real estate agent can help you find short sale properties and navigate the process of buying one.
- Searching online: There are a number of websites that list short sale properties, such as Zillow and Bankrate.
- Contacting lenders directly: You can contact lenders directly to inquire about short sale properties they may have available.
Steps to Buying a Short Sale Home
The procedures for purchasing a short sale house are as follows after you’ve found one you like:
- Make an offer: Submit an offer to the seller, along with a pre-approval letter from your lender.
- Negotiate with the lender: The lender will review your offer and may negotiate with you on the price.
- Close on the property: Once the lender approves the sale, you will close on the property and take ownership of it.
Tips for Negotiating a Successful Short Sale Deal
Here are a few tips for negotiating a successful short sale deal:
- Be patient: The short sale process can be lengthy, so be prepared to wait it out.
- Be flexible: Be willing to compromise on the price and other terms of the sale.
- Get pre-approved for a mortgage: This will show the lender that you are a serious buyer.
- Work with an experienced real estate agent: An experienced agent can help you navigate the process and negotiate the best deal for you.
Buying a short sale home can be a great way to save money on a home purchase. However, it’s important to understand the process and the potential risks involved before you make an offer. By following the tips in this guide, you can increase your chances of buying a short sale home successfully.
The short sale process: The seller’s side
Convincing the lender or mortgage holder that you are experiencing a genuine financial hardship that keeps you from being able to continue making mortgage payments on the property is the first step in the short sale process. This could involve losing your job, a health-related issue, divorce or even the death of your partner. It is necessary for you to notify your lender of your change in circumstances by sending what is called a hardship package or letter. Your lender may ask you to submit substantial supporting documentation for your hardship, such as bank statements and copies of bills or other expenses, as part of the hardship submission process.
Work with the lender
You or your agent should speak with the lender’s loss mitigation department or resource recovery department. The homeowner must fill out and sign an authorization letter (which usually needs to be notarized) granting the lender permission to speak with you about the mortgage. Additionally, many lenders have an application specifically for a short sale request. Find out what documentation they need to consider a short sale if they don’t already have a short sale application.
Here’s What Home Buyers Need to Know About Short Sales
FAQ
What is the downside of a short sale on a home?
What is the purpose of a short sale of a home?
Can you offer less on a short sale?
Does a short sale hurt your credit?
How do I find short sale homes?
Shop for properties: If you find a short sale property that you want to purchase, you must work with your real estate agent to identify how much the seller owes, how many loans they have, and whether they’ve been approved by their lender (s) for a short sale.
What is the difference between a short sale and a foreclosure?
In a foreclosure, the lender seizes the home after the borrower fails to make payments. Unlike a short sale, a foreclosure is initiated by the lender alone. Foreclosure is the last option for the lender. In such cases, the lender repossesses the home, hoping to eventually make good on its investment in the mortgage.
What are the benefits of a short sale?
The main advantage of a short sale is that it allows traders to profit from a drop in price. Short sellers aim to sell shares while the price is high, and then buy them later after the price has dropped.
What is a short sale?
A short sale happens when a homeowner owes more on the mortgage balance than the market value or sale price of the property at the point the owner wants to sell. For a short sale, the homeowner is essentially asking the mortgage lender (typically a bank) to accept a lesser amount than the total mortgage owed.