Home sellers are sometimes motivated to sell a home because of financial difficulties, divorce, or the death of a partner or spouse. If they are lagging behind on mortgage payments, they may look at a short sale option instead of facing foreclosure. According to a Statista report, about 0.23% of American homes were in foreclosure in 2022. In comparison, about 5% of home sales (including condominiums) were short sales. If you are considering a purchase of a home through a short sale, Attorney Mortgage is available to make your decision and your home buying process easier.
What Is the Difference between a Short Sale and a Foreclosure?
Ideally, a home owner would avoid selling a home in a short sale, but in some cases it is the smarter option. When a home owner is late on mortgage payments, after a certain period of time a lender may repossess the home and resell it. If the lender cannot sell the home for an amount equal to or more than the amount owed on the home, the home owner may still owe money on the original loan and be required to pay. This deficiency judgement may vary according to state laws and regulations. Foreclosure can affect the person’s credit score and report, and may prevent them from qualifying for a home loan for several years following the foreclosure.
One option to avoid foreclosure is a short sale. A real estate agent will list the home as a short sale that is subject to lender approval. A seller is able to remain in the home until the sale is completed and closed. Selling a home in a short sale is less damaging to a person’s credit and future home purchasing options.
“The process takes longer,” warns Bob Thompson, a realtor in Hampton Roads, Virginia. “The bank agrees to accept a lower price then what the owner owes on the property. They then forgive the difference, and the owner is free to walk away. For the bank, it is still better then a foreclosure. For the owner, it does not hurt their credit [in the same way] as a foreclosure.”
How Can a New Home Buyer Benefit from a Short Sale?
“A short sale can be a great way for first time home buyers to get a great property at a reduced price,” says Thompson. “Most short sale homes are neglected, and no repairs will be done. But most qualify for a FHA or VA loan. The process can take quite a while depending on the bank or agent – that is why you need someone experienced.”
Attorney Mortgage is available to help you in any home buying and lending process.
What Are the Drawbacks to a Short Sale Purchase?
Some problems that could arise with a short sale are:
- Lenders could block the sale, especially if the homeowner has multiple loans on the property.
- The process is more time-consuming and may require more paperwork.
- The buyer is typically responsible for any necessary repairs to the property. Buyers may be asked to cover repairs, wire transfers, and other fees associated with the sale.
- The seller could decide not to sell, if there are costs they cannot or will not pay in order to close.
- The bank could receive a better offer and take it, even if you have offered earnest money and completed home inspections or appraisals.
What Is the Process for Buying a Short Sale Home?
If you are considering the purchase of a short sale home, call Attorney Mortgage and take these steps:
- Have all your paperwork ready for the loan process. You will need to gather tax records, income statements, any paperwork connected to savings or other accounts (including marriage or divorce agreements if related), etc. Contact Attorney Mortgage if you have questions about necessary paperwork.
- Get a pre-approval for a mortgage. Pre-approvals are more in-depth than a pre-qualification. A lender will take a look at all your information, including your income, savings, and credit score, and will give you an offer of approval. The pre-approval has a time limit of typically 90 to 120 days.
- Talk to your agent about the short sale property, and ask questions. How much does the seller owe? Has their bank or mortgage company approved a short sale? Are there other loans or liens on the property? The more you know about the property, the better decisions you can make. It is important to find a real estate agent who is experienced in short sales.
- Make an offer on the property. Your real estate agent will help you with the offer, and an agent skilled in short sales will be able to streamline the process and discover fair market value based on comparable homes in the area. Make sure your offer is complete, with purchase contract, earnest money deposit, pre-approval letter, and comps to prove that your offer is fair. An offer that s too low will simply prolong or even end the negotiations.
- Include any contingencies, or conditions that need to be met in order to close. This could include getting loan approval on the home, a deadline for approval of sale from the seller’s lender, a cap of any costs you are willing to take on, etc.
- Your lender will likely request an appraisal and a home inspection. Remember, with short sales, it is unlikely that repairs will be made by the seller, so use the home inspection report as your guide to costs you will incur after purchasing the home.
Purchasing a home for the first time can be challenging, but rewarding. If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to re-finance your home, Attorney Mortgage can help you navigate the loan process. Contact us or call (816) 379-6264.
Ready to find out more?
If you are a newly degreed attorney, an established attorney looking for a first home, or if you are ready to re-finance your home, Attorney Mortgage can help you navigate the loan process. Contact us or call (816) 860-1686.