Purchasing a home today does not always mean purchasing a home at full price. Because of the downfall the economy took, there are still plenty of short sale homes available on the market. They are not as plentiful as they were a few years back, but you can still find them. If you plan to purchase a short sale home, there are some different things you need to concern yourself with in order to make the process go as smoothly as possible.
What is a Short Sale Home?
First, let’s look at what a short sale home is all about. It is a home that the owners sold for less than it what they owed on it. The most common reason this happens is because of the value of the home drastically dropping, which we saw a lot of with the mortgage crisis. When a borrower becomes upside down on his mortgage, it becomes hard to be able to afford it, and impossible to sell if they planned on moving, so the borrower asks the lender to accept a much lower price than they owe in order for them to get out of the home without foreclosing on it.
What do you Need to be Concerned About?
There are a few things you need to be concerned about when you purchase a short sale home that might or might not be an issue with a standard purchase:
- The bank that holds the mortgage has the final say in the price, rather than the seller and/or agent. You will make your bid as you normally would with any home purchase; however, the bank has to approve the amount in order for the sale to go through. This is not a quick process either; you can wait months for the lender to give the final okay for the offer, so be prepared to play the waiting game.
- Banks look at different things than they would for a standard purchase. You might think that if your bid is the highest that you will win the bid for the short sale home, but that is not always the case. Some banks do take the highest bid while others take the one with the highest down payment or the one that is paying cash. Every bank differs in what they prefer.
- There will likely be more repairs that you realize. Make sure that you have a thorough inspection done on the property so that you know exactly what you are getting yourself into. Remember that the seller is probably being forced to sell his home so he may not have done very much upkeep and/or maintenance in the last few years or whenever things started going downhill so make sure you go over the home with a fine-toothed comb.
- You are purchasing the home “as is” which could mean purchasing problems if you do not do your homework. Research the history of the home with the city and county to see if any permits were taken out to have work done or if there are any liens on the property that could leave you in deep financial trouble down the road. Knowing what you are getting into can help you decide what the right choice is.
- Low offers are not taken seriously most of the time on a short sale home either. The bank is out to try to get their money back, or at least as much of it that they can get back, so don’t try to lowball the offer just to get a great deal because the bank probably won’t go for it and it will be a long time before you find out.
Get Your Financing in Order
The one thing that you must always do when you wish to purchase a short sale home is to have your financing ready. The moment you make an offer, start getting your financing approved. This means talking to the lender and providing him with all of the documents he needs to get the ball rolling. As soon as you receive the green light that your offer was approved, your lender can put the finishing touches on the loan and have the appraisal done, giving you a shorter waiting period after that. This is a very important step because the closing date that the bank provides that is selling the home is non-negotiable. The last thing you want is to have your financing break the deal for you after you wait all that time for your bid’s approval.
Buying a short sale home can be a lucrative way to get into a home, but you have to be willing to wait. Doing your homework and having your financing ready is the best way to ensure that your process will go as smoothly as possible. If you have questions, always make sure you communicate not only with your real estate agent but with the bank that has final approval to ensure that you really understand the process and where you stand with your chance of approval.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.