Buying a Short Sale? What you need to know.
If you find a home with the asking price much lower than similar homes in a neighborhood, chances are it is a Short Sale. Although the price may be good, purchasing a Short Sale tends to be a more complicated transaction. It is not uncommon to wait 3-5 months to close on a Short Sale.
The good news about a Short Sale is that in exchange for your patience, you will likely own a home in move-in condition up to 30% below market value!
You have nothing to fear when making an offer on a Short Sale property.
What is a Short Sale?
A Short Sale means the owner of the seller's mortgage is willing to accept a lower payoff than is owed to release the mortgage. Just because a property is listed with Short Sale terms does not mean the lender will accept your offer, even if the seller accepts it.
Keep in mind that in virtually every case, local lenders, banks or mortgage companies do not own the loan. Their actual title is "loan originator". This means they collected the seller's information, processed the mortgage paperwork, then sold that mortgage to another bank or holding company. In most cases mortgages are owned by Fanny Mae, Freddie Mac, FHA or the VA. These actual owners of the mortgage are the ones who will ultimately decide whether to accept the lower offer of a Short Sale.
Why do lenders accept Short Sales?
Lenders accept Short Sales for different reasons: Perhaps the seller's financial condition has changed, and they may have missed one or more mortgage payments. In some cases, the seller must sell the home (changed job, divorce, etc.) and the home is clearly not worth the amount owed. A lender may consider a Short Sale even if the seller is current on their payments, but the value has fallen. Because every situation is unique - and every lender has different rules - Short Sales tend to take longer to close than normal sales.
What problems can happen during a Short Sale?
You can make an offer on a Short Sale property, have it accepted by the seller, then find out weeks or even months later that your offer has been rejected by the lender. There is no guarantee that the lender will accept your offer. Sometimes the property will be appraised for less than your offer, and the lender will counter your offer by asking you to make up the difference. In addition, if the seller has missed too many payments, the property may revert to a foreclosure, and the lender will no longer accept any offer. And if their is more than one loan on the property, both lenders must agree to the Short Sale.
What is required to make an offer on a Short Sale?
When you make an offer on a Short Sale, you are required to have 3 things: a purchase agreement, an ernest money deposit (EMD) and proof of funds (POF) or an approval letter from your lender. Deposits are typically 1% of the value of the house, or at least $500 dollars. Your deposit will be applied to the purchase price of the home in the event of a successful transaction.
How can I improve my chances of winning a Short Sale?
The most important way to have your Short Sale offer accepted is to have a real estate agent with Short Sale experience. They will help to expedite the transaction and will protect your interests. Many facets of a Short Sale are time-sensitive, and a single missing document can delay a Short Sale by weeks, or even kill the deal.
Unfortunately, some real estate agents with no experience in Short Sales will try to discourage you in pursuing a Short Sale because they are harder to process, take longer, and may have a smaller commission. Take the time to check your realtor's references to make sure they are experienced and can give you the best advice.
Once the seller has accepted your offer, it will need to go to the lender for approval. The lender will want to see that you have your own loan available and are pre approved. Waiting to get a loan after your offer is accepted will slow down the Short Sale process.
Can I Change My Mind After I've Made An Offer?
You are free free to cancel your offer at any time, but you may lose your deposit.
You should make your offer contingent upon the lender's acceptance of the Short Sale. Give the lender a reasonable time frame in which to respond. If you change your mind about purchasing the house after the time is up, you will most likely get your deposit back.
In addition, you should make your offer contingent on a home inspection. Since you will be asked to purchase the property "as is," which means no repairs, it is extremely important that a you obtain a home inspection prior to the lender's acceptance of the Short Sale.
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