House of Mortgage

House of Mortgage

What Is A Short Sale?

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What Is A Short SaleNobody enters into a mortgage assuming they are going to fall short on their payments; however, life happens and borrowers might need a way out. In serious situations, lenders may elect to foreclose on homeowners who are unable to make their mortgage payments. Fortunately, there might be another way out. This is called a short sale.

A short sale can be used to help homeowners who are struggling cater to those who are looking to buy a home. At the same time, there are risks to both parties. Therefore, there are a few important points to keep in mind.

What Is The Structure Of A Short Sale?

If someone owes more on their mortgage than the property would otherwise sell for, this is called a short sale. In this situation, the lender accepts the money coming from the sale of the home rather than that money going to the homeowner. This is because the homeowner still owes a significant amount of money on their mortgage.

Take, for example, someone who owes $300,000 on their mortgage. In a short sale situation, he or she would sell the home for $250,000 in a short sale. In this fashion, the lender agrees to accept a smaller amount of money for the home than he or she would get otherwise. In essence, the lender is then short $50,000. This is where the name comes from.

This is different from a foreclosure. A foreclosure happens when the borrower falls so far behind on payments that the lender reclaims the property.

The Benefits Of A Short Sale

The biggest benefit of a short sale is avoiding foreclosure. A foreclosure is a disastrous event for someone’s credit score. When someone agrees to a short sale process instead, he or she will often buy a more affordable home shortly thereafter. 

Buying A Home In A Short Sale

On the buyer side, the biggest benefit of targeting a short sale home is that there is usually a great deal on the price. The lender is already not getting their money on a regular basis and is often motivated the sell the home quickly to recoup their money.

On the other hand, short sales often take longer to proceed. The lender has to approve the sale and price, which might lead to delays. The condition of the house may also not be in good shape. Therefore, be sure to get a home inspection.

Calling your trusted real estate agent and mortgage loan professional is the best thing to do if you have questions regarding your home and a possible short sale.

How To Buy A Bargain Home As A Short Sale

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How To Buy A Bargain Home As A Short SaleA short sale is when the mortgage lender(s) agrees to sell the property for a lower amount than the loan-balance remaining.

During the worst moments of the 2006 to 2008 real estate crisis, homes sold as short sales for a fraction of their value. Lenders had so many properties with loans in default that they could not manage the ones that they had in foreclosure.

Foreclosure is an expensive legal process that causes a lender to lose more money on a property. This is one of the motivators that encourages lenders to accept a short sale because sometimes through a short sale the foreclosure process is avoided.

Are Short Sales Still Available?

The number of short sales peaked in 2012. The inventory of homes available for a short sale transaction is much lower than the massive numbers caused by the 2006 to 2008 real estate crisis; however, they still do exist.

Short sales are still worth exploring as long as a qualified buyer has enough cash on hand or is pre-qualified with home-purchase financing that is acceptable for a short sale transaction.

A short sale may be a bargain; however, the buyer must be careful because there are some pitfalls to avoid in short-sales transactions.

The Challenging Dynamics Of A Short Sale

There are three (or more) parties in a short-sale transaction. They are the seller, the buyer, and the lender(s). All must agree to the closing sales price of the home and the terms and conditions of the sale in order for the transaction to succeed. The lender(s) forgives part or all of the mortgage loan that is secured by a lien on the property and agrees to take a loss on the sale.

A short sale only occurs when the home cannot sell for the amount of the mortgage loan(s) on the property. The home is considered to be “underwater,” which is a colloquial term for a home, with a loan(s) that is more than the home is worth.

Short sales do not close quickly because the paperwork is complicated. If there is more than one lender on the property, the process is even slower. Buyers in short sale transactions need to be patient. They must be approved for financing and also approved by the existing lien-holder(s) on the property that is for sale by making a successful short-sale application.

A buyer may need to make a “good faith” security deposit to initiate the short sale application process. The deposit, which is refundable, may sit in a trust account for quite some time before the deal is approved.

Even with proper planning, a short sale deal can still fall apart. Buyers must also take on the risk that the property may need significant repairs and buy the property “as-is.” Homeowners who cannot pay their mortgages usually are not very diligent at taking care of their properties.

Summary

Short sales are an important strategy to consider when searching for a bargain property. Buyers must have cash or significant financial strength and be willing to complete the complex process for the transaction.

To reduce risk, a buyer needs to get careful inspections of the home and have a very clear idea of the costs to bring it up to a nicely-repaired condition, in order to profit from this strategy.

Be sure to get your financing pre-approved before starting any negotiations. Your trusted home mortgage professional is ready to assist with this process and discuss all available financing options. 

Differences Between A Short Sale And A Foreclosure

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Differences Between A Short Sale And A ForeclosureIf you’re looking to get a non-traditional deal on a new home purchase, you may encounter either a short sale or a foreclosure. These two terms refer to sales that are not usual. As a homebuyer, it’s important to understand the differences between them and how each one might affect your buying experience.

What’s A Short Sale?

A short sale is a situation where the owner has a strong motivation to hurry up and sell their home. In so doing, they’re willing to sell for less than what they owe on the house. Homeowners have a variety of reasons why they might do a short sale. Their reasons might include a personal emergency, or they might be trying to protect themselves against a future foreclosure.

In a short sale, the owner’s lender has to be apprised of the plan. In many cases, the lender is supportive of the short sale, since it keeps them from having to go through the long and expensive process of a foreclosure.

Short sales can represent great deals for buyers. However, since this type of sale is so unusual, the process of buying often takes a much longer time than a regular home purchase. You’ll need to be patient, but if the sale does go through, your patience can certainly pay off.

What’s A Foreclosure?

A foreclosure is a situation where the owner’s lender is forcing the sale of the property due to unpaid mortgage payments. The lender is essentially taking back ownership of the property. The bank then puts the home up for sale as a foreclosure, and is the official seller of the property.

A foreclosure property may offer a good deal for a buyer, but the process may be long and drawn-out. Since the seller is the lender, they are not in any particular hurry to sell a property, and the transaction can be very complicated.

If you’re interested in buying a short sale or a foreclosure, you should be sure to contact your trusted home mortgage professional for pre-approval and financing options. It’s also important to utilize the resources of a trusted real estate agent that specializes in these types of transactions. These professionals can help you to successfully navigate through the red tape that often occurs with short sales and foreclosures.