For buyers, it makes the most sense to consider a short sale if homes rarely become available in a neighborhood you\u2019re dying to live in, if the home has features you haven\u2019t found elsewhere, or if you\u2019re an investor and the property makes sense for your portfolio \u2014 and you can wait to close in every scenario.<\/p>\n
Short sales fall into the category of \u201cdistressed\u201d sales<\/a>. Buying one won\u2019t be a walk in the park, even if the home is next door to one. Could they be a good fit for you? Here\u2019s when it\u2019s good to buy a short sale house.<\/p>\n A short sale<\/a> is when the owner of the house is underwater on their mortgage, and the lender agrees to let them sell the home for less than what\u2019s owed.<\/p>\n For example, the home\u2019s current market value could be $230,000 but the homeowners owe $265,000. They want to sell the house, but the sale won\u2019t generate enough to pay off the mortgage.<\/p>\n This means they\u2019re \u201cshort\u201d the funds to clear the debt. The homeowners\u2019 mortgage lender will have to agree to accept less than they\u2019re owed.<\/p>\n Trying to decide if you\u2019re the right person, in the right situation, to buy a short sale? Ask yourself these questions and evaluate the pros and cons<\/a>.<\/p>\n These sales can take a long time because the bank is involved<\/a>. After a short sale seller receives an offer that they\u2019d like to accept, they have to take it to the bank. The bank could send the offer through several layers of bureaucracy before either approving or rejecting the short sale.<\/p>\n Ruiz thinks that most traditional buyers don\u2019t fit the short sale market well \u201cbecause they don\u2019t want to wait for months to get an answer. They want to get a counter-offer in 48 hours and not wait.\u201d<\/p>\n It\u2019s not easy to find a short sale<\/a>, especially if you live in a hot seller\u2019s market. They aren\u2019t exactly thick on the ground.<\/p>\n Being underwater on a mortgage isn\u2019t enough for many sellers to get bank approval to list as a short sale. Often, they must meet other requirements (such as documented financial hardship).<\/p>\n These aren\u2019t good deals if you\u2019re in a hurry to move in quickly.<\/p>\n Lease ending on your apartment and don\u2019t want to renew? See if you can go month to month, because a short sale could take several months to close<\/a>. If you need a place to live soon, a short sale likely isn\u2019t a good fit.<\/p>\n And the deals often fall through \u2014 even in 2009, at the height of the housing collapse, only 23% of short sale offers<\/a> actually closed. If you\u2019d be left without housing if the deal fell through, consider looking for a conventional home purchase.<\/p>\n Being underwater on their mortgage<\/a> is only one piece of the seller\u2019s puzzle \u2014 to get approval for financial hardship, the seller often has to prove they can\u2019t make mortgage payments.<\/p>\n The bank could request proof of loss of income, such as a layoff. They could examine the seller\u2019s other assets, such as retirement accounts, to gauge their ability to keep paying.<\/p>\n In 2014, Gretchen K.\u2019s home was valued at $80,000 under her $170,000 mortgage. She reached out to the lender and asked for approval for a short sale due to the difference in value.<\/p>\n \u201cThey denied the request after several months of back-and-forth communication,\u201d she says. \u201cWhen I kept inquiring, they stopped communicating completely.\u201d They wouldn\u2019t say why they denied the request. Eventually, even though she would have preferred to work with them on some kind of short sale solution, she walked away from the house.<\/p>\n Short sales are typically sold \u201cas is.\u201d In a conventional home sale, you could request that the seller make repairs or reduce the sale price if the home inspection reveals serious issues. The bank likely won\u2019t negotiate after approving a short sale price.<\/p>\n If you can get the house inspected before <\/i>you write the offer, you can factor the home\u2019s condition into the offer price. A home inspection also gives you a better idea of what you\u2019re walking into \u2014 like needing a new roof before winter.<\/p>\n Ruiz doesn\u2019t always think it\u2019s a good idea to get an inspection before making an offer; he advises waiting until you know if you\u2019re the winning bidder. If the bank won\u2019t allow an inspection, and you\u2019re not comfortable taking this risk, then walk away.<\/p>\n If you and the seller can\u2019t agree on a purchase price, or negotiations have stalled, then a short sale purchase might not be for you.<\/p>\n Even if you and the seller can agree on the price, the bank has to approve the sale price, too<\/a>. Often, banks try to recoup as much of their initial investment in the property as possible. They may refuse to consider the home\u2019s condition or market deterioration. Lenders try to get top dollar or market value for a short sale to minimize losses.<\/p>\n A bank won\u2019t negotiate much other than the sale price.<\/p>\n In a traditional home sale, you could ask the seller to pay some of your closing costs<\/a>, but the bank is unlikely to concede here. If your home budget depends on someone else covering closing costs, you may want to either wait and save more money, or factor that into your offer price on a short sale.<\/p>\n If you\u2019ve got a tight budget, think hard about a short sale. Even after you\u2019ve agreed upon a price with the seller, after several months of negotiations and paperwork and back-and-forth, the bank could decide it\u2019s not happy with that price and ask for more.<\/p>\n Let\u2019s say you\u2019ve reached an agreement with the seller, but it\u2019s taken the lender weeks to respond<\/a>. The lender could perform another valuation, and if the property has gone up in value, the deal could fall through. In Ruiz\u2019s opinion, \u201cit\u2019s very risky to the buyer.\u201d<\/p>\n If you\u2019re unable to meet that increased price, you\u2019d have to walk away from the purchase. And don\u2019t forget that short sales are as-is sales; you aren\u2019t going to have a lot of wiggle room to make repairs, either.<\/p>\n Unless you can pay for the house in cash, you’ll need to get a mortgage<\/a>. You\u2019ll still need to be a qualified buyer.<\/p>\n This means you need: a qualifying credit score, a down payment or access to a zero-down loan, and money to pay for closing costs. It\u2019s a good idea to get preapproved for a mortgage<\/a> before home shopping in general, but definitely before making an offer.<\/p>\n In Gretchen K.\u2019s case, the bank wouldn\u2019t even respond to letters or phone calls from the current owner. To surrender the property, she had to send a certified letter.<\/p>\n Banks aren\u2019t usually in the business of buying and selling houses, and when they find themselves in the position of selling one, they can be notoriously challenging to work with.<\/p>\n When Ruiz is involved in a short sale, he\u2019s asking who the lender is and whether the listing agent has delegated authority to act on the bank\u2019s behalf.<\/p>\n \u201cOn the buyer\u2019s side, you really have to engage heavily with the listing agent to hold them accountable,\u201d he says, and \u201cmake sure they\u2019re going through the process with the bank, that the sellers are providing updated financials, anything that needs to happen to move the sale forward.\u201d Deals can fall through if an inexperienced listing agent handles the sale.<\/p>\n Ruiz\u2019s best advice? If you’re going to buy a short sale, \u201cmake sure it\u2019s that \u201cgotta have it\u201d house.<\/p>\n \u201cYou\u2019re going to have to be prepared to go on the emotional rollercoaster of waiting three, four, or six months \u2014 and it\u2019s not happening.\u201d<\/p>\n In his area, turnover in some gated communities can be quite low. If a buyer has been trying to get into a community, and a short sale comes on the market there, it\u2019s often worth their wait.<\/p>\n It\u2019s not for the faint of heart, so you\u2019d better have your whole heart in that house!<\/p>\n Header Image Source: (dcbel \/ Unsplash)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Is it good to buy a short sale house \u2026 or are there better ways to get a good deal on real estate? Answer these ten questions to find out!<\/p>\n","protected":false},"author":153,"featured_media":27892,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"cybocfi_hide_featured_image":"","footnotes":""},"categories":[192,629,635],"tags":[],"class_list":["post-27885","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-buyers","category-home-financing","category-auctions-foreclosures"],"acf":[],"yoast_head":"\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/11\/things-to-do-before-listing-your-home-money-666x381.png\")
<\/a>First: What\u2019s a short sale?<\/h2>\n
When is it good to buy a short sale?<\/h2>\n
Do you have a lot of patience?<\/h3>\n
Can you find a short sale?<\/h3>\n
Do you have a place to live now?<\/h3>\n
Will the bank approve the seller\u2019s financial hardship?<\/h3>\n
Can you get the house inspected before writing an offer?<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/11\/good-to-buy-short-sale-house-seller-666x381.png\")
<\/a>Can you and the seller agree on the purchase price?<\/h3>\n
Can you pay the closing costs?<\/h3>\n
Do you have flexibility in your budget?<\/h3>\n
Are you a qualified buyer?<\/h3>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2021\/11\/good-to-buy-short-sale-house-letter-666x381.png\")
<\/a>Can you work with the bank and listing agent?<\/h3>\n
Do you love the house?<\/h3>\n