Should you Avoid a Short Sale?
It takes a very special buyer to be able to successfully get through the process of purchasing a short sale. Psht, how hard can it be right? Wrong, it is a long process that even if you make it through to the end, doesn’t always have a happy ending.
So, do you think you have what it takes? Let’s see.
Shall we start with the basics?
What exactly is a short sale?A Short sale is when the amount of money owed on the property is higher than the sale price of the home. So for instance, the sellers have a mortgage of $400,000 but selling their home will only give them $300,000 and they cannot afford to pay the other $100,000 out of pocket. Normally, a short sale is an alternative to foreclosing the property.
What does this mean for a buyer?You can still purchase a short sale, but it’s not going to be easy. There are some negatives that you should absolutely expect.
1) I hope you’re patient.This is going to take a while, months actually. When you decide to move forward on a short sale you are going to be submitting an offer to the lender for approval since they currently own the property. That means you are going to have to wait while the offer goes through the bank’s approval process. On average, one lender can take about 3 months to approve a deal. The real issues arrive if there is more than one lien (mortgage) on the property. Then you can expect about 3 months per lender (2 lenders = average time 6 months of waiting). Yikes. Not to mention, after waiting that long the lender can easily shoot down your offer if they don’t like it. Sounds like a great time, right? Before putting in an offer, you can have a title officer check out how many liens are on the property so you can get a clearer picture of how long your wait time will be. Also, make sure you’re sending the bank your best offer. On average, many lenders will take an offer that is up to 10% below asking, you don’t want to go too low. They are less likely to accept offers with home sale contingencies or a request for the lenders to pay your seller fees. Also, you need to remember you are dealing with a lender who is trying to clean up the mess from a bad deal. You have to make sure that you are completely qualified for your financing. If any red flags pop up, they might reject you. Banks love cash offers, so if you are lucky enough to be able to afford one- go for it.
2) Buyer Beware.You can expect that this deal is going to have “as is” written all over. What does that mean exactly? It means you are going to be purchasing the home in “as is” condition. This means the seller will not cover any cost of renovation or make any repairs before they give you the keys. You are on your own. Short sale homes can sit vacant for weeks, months, or years before you purchase them. That means you can expect issues that come from home neglect like leaks, mold, termites, thievery, and just general dirtiness. Also, don’t think that if the seller was still living in the home the conditions are going to be any better. There is a good chance that whoever owned the home couldn’t afford to do any repairs or serious upkeep. You might be walking into a disaster area. Make sure before you put in an offer that you have a home inspection. Maybe even more than one, they might be able to give you a warning sign of any serious issues hiding away. Otherwise, you might find yourself with a major renovation on your hands just to stop the home from being condemned once you own it. Yikes.
So what should you do?You have to be honest with yourself and your situation.
You might love the house, but is this deal going to work for you? Just to review, you might not be the perfect candidate for a short sale if:
1) You have a lease that is ending soon or are already in the process of selling your other home. You don’t want to end up temporarily homeless while you are waiting to close.
2) Your financing isn’t 100 percent picture perfect.
3) If you are just looking for a bargain and aren’t willing to commit to a hefty renovation if needed.
At the end of all the waiting and even if you have done everything correctly, you might still be rejected and that’s okay. Short sales are a complicated situation, there just isn’t always a happy ending.
So, if you think you can handle a short sale- more power to you. Get that offer in ASAP- you will have plenty of time to waste later!
-If you have Veterans with questions about their loan, please have them call the VA toll-free number, (877) 827-3702, to reach the nearest trained VA Loan Technician who can counsel them about their situation. Any veterans or service members who feel they may be facing homelessness as a result of losing their home can call (877) 4AID-VET (877-424-3838) or go tohttp://www1.va.gov/HOMELESS/NationalCallCenter.asp to receive immediate VA assistance.
Source: Veterans Administration, www.va.gov