What is a Short Sale? Things You Should Know Before Buying
Nowadays, many prospective home buyers decide to pursue a short sale because they like the home and can get a better deal compared to other properties on the market. To help you decide whether or not you are a good candidate for such a home, let’s find out what a short sale actually is.
Concisely, a short sale means selling a home for less than what the borrower owes to the lender, with the lender’s approval. Although there are many pros to buying a short sale, there’s often more than meets the eye. To get the most out of a short sale, every prospective home buyer should carefully consider the following home buying tips before even starting the house hunting process.
Consider the price range
Many short sales allow buyers to benefit from drops in price. But these homes aren’t always less expensive than other comparable properties in the area. Before approving a short sale, lenders insist on a comparative market analysis (CMA), which indicates whether the market value of the home has declined or increased over the years. Based on the CMA report, a lender can hold out for the highest sales price possible, which may be identical to the average sales price of regular homes. Because short sales are negotiated between sellers and their lenders, buyers can rarely purchase a short sale at a price lower than what the lender has pre-approved.
If you already know how much you can comfortably afford to spend on a home, focusing exclusively on short sales in your price range will help you avoid wasting time looking at properties that don’t fit your financial goals.
Require a home inspection
When considering a short sale, one of the most important home buying tips we can suggest is to require a home inspection. Although lenders order home appraisals in order to establish the market value of short sales, most of these homes sell “as is”. In this case, “as is” indicate that sellers and lenders refuse to pay for any repairs that might be required.
On the other hand, a home inspection performed by a licensed professional will reveal any hidden problems with the home. As home inspectors can also provide cost estimates for repairing defects found during home inspections, a prospective home buyer will be able to make a reasonably informed decision about whether or not to purchase a particular piece of property.
Consider private mortgage insurance
If the short sale doesn’t cover the entire outstanding balance on the mortgage, it can trigger private mortgage insurance (PMI). In a perfect world, lenders would allow short sales, forgive any deficiencies resulting from the sale, and collect the difference from PMI insurers. But some title insurance policies include contingencies which stipulate that the insurer doesn’t have to pay off until a piece of property has been in foreclosure for a certain number of days. If the insurer doesn’t agree to pay earlier than specified, he can hold up the sale.
Don’t ignore the length of time to close
A prospective home buyer should be aware that buying a short sale often takes longer than it takes to purchase a regular home. Depending on different variables, including the type and number of mortgages secured by the property in question, the paperwork required by the lender, and the volume of short sales and foreclosures the lender must process, it could take anywhere from several weeks to several months to get a response on a purchase offer.
Take into account the legal aspects
When considering the best home buying tips for purchasing a short sale, home buyers should also know that lenders can renegotiate the terms of short sales at the last minute. If, for instance, new laws go into effect during the home buying process or there are any changes that significantly affect the local housing market, lenders can alter the terms and conditions of the sale for their benefit.
Purchasing a short sale can be more difficult than buying a regular home. However, it may turn out to be a “win-win” transaction for all the parties involved. As long as you understand how short sales work and carefully consider expert advice, nothing should stop you from finding the right home for your family and getting a good deal.
Whether you’re looking for a pre-owned or a brand new home, or for the best home buying tips, Whitworth Builders is here to assist you. To date, our experienced professionals have helped hundreds of customers find or build their dream homes across Northwest Florida.