Are you looking to buy a new home or investment property? Now is a great time to be a buyer as the current real estate market holds many bargains to be found.
Foreclosures are one option, but in many cases you will find that these properties are heavily damaged or in a state of disrepair. Another option is to make an offer on a short sale.
FORECLOSURE – what does that mean?
A foreclosure is when the bank, or lending institution, has taken the property back due to non-payment of the mortgage and is selling the property directly.
SHORT SALE – what does that mean?
If a home is being sold as a “short sale” that means that it is being sold for less than the current owner owes on the property and the seller does not have the funds to make up the difference at closing. Due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market more home owners are finding themselves in this situation.
In most cases, the homeowner involved in a short sale still lives in the property so it has not been vandalized and may require less work or repair.
Homeowners often try to accomplish a short sale in order to avoid foreclosure as it is less damaging to their credit.
While a short sale can be a bargain, there are a few things you need to know before you make an offer.
HOW DOES A SHORT SALE WORK FOR A BUYER?
When you write a contract on a short sale property it will be sent to the Seller (just like a normal contract). If the Seller accepts and signs the contract it will then be sent to the Lender for approval.
Some Lenders will have proactively worked on the property package and will know what they will accept. In this case, the short sale approval can be as short as 60 days. Some Lenders will not begin this process until a contract has been received. In these cases, the standard approval can take six to eight months!
I have read statistics that say that because of this lag up to 60% of short sales fail due the Buyer losing interest or finding another property.
However, a new program (HAFA) is due to begin 4/5/10 which was created to streamline these requirements and shorten the timeline. This is expected to help Buyers, Sellers and Lenders by getting more short sales completed.
WHO IS A GOOD SHORT SALE CANDIDATE?
While a short sale can be an excellent way to get a bargain in today’s market, it is not a good choice for all buyers.
You're a good candidate for a short-sale purchase if:
You're very patient - Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale. (HAFA is a new government program that is set to begin on 4/5/10 which should reduce this time frame.)
Your financing is in order – For obvious reasons, Lenders prefer cash offers. However, if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you have a written pre-approval, a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
You don’t have any contingencies - If you have a home to sell before you can close on the purchase of the short-sale property, or you need to be in your new home by a certain time, a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.
You make a reasonable offer - The Lender is already losing money so they want to minimize those losses as much as possible. If you make an offer that is significantly lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted your time and everyone else’s.
Here are a few other things that a Buyer needs to be prepared for.
“AS IS” Property - The property may require repairs and the buyer will most likely be asked to take the property “as is.” Because the Lender is already taking a loss on the property they may not agree to requests for repair credits. Be sure to speak with a qualified and experienced agent about how you can write the contract to protect yourself in this circumstance should significant damage be found during the inspection.
Unworkable terms - When a lender approves a short sale, it may require that the sellers sign a promissory note agreeing to repay the remaining amount of the loan (called the deficiency). This may not be acceptable to some financially desperate sellers. In which case, the Seller may refuse to go through with the short sale. Lenders can also change the terms of the contract that you already negotiated, which may not be agreeable to you. In that case, you may refuse to go through with the short sale.
As you can see there are a few downsides to making an offer on a short sale. But if you have the time, patience, and will to see it through, a short sale can be a win-win for you and the sellers.
This North Georgia Real Estate blog is hosted by
Gayle Barton of BERKSHIRE HATHAWAY Georgia Properties located in the quaint mountain town of Blue Ridge, GA.
Please feel free to call (866-413-1781) or drop me an email gaylebarton@inbox.com if I can assist you with buying or selling your mountain home or property.
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