Buying a short sale is similar to buying a foreclosure but the two processes have they're differences. In a short sale, the bank/mortgage lender doesn't evict the homeowner. The lender lets the current owner sell the house for less than the mortgage debt.
The process can be time consuming but you start like any other real estate transaction- getting pre-approved (unless you're paying cash).
Good Offer Package for Short Sale:
-Purchase contract for you and seller to sign
-Pre-approval letter to prove ability to purchase
-Information on recent sales prices for similar properties in the area to prove your proposed price is reality-based
-Proof of funds: may be needed if pre-approved letter doesn't convince seller you make enough money
~~Low-balling will not work in your favor!!
Make contingent on lender's approval of the sale, the length of time you're willing to wait for short sale approval and amount you will pay in closing costs, as well as a home inspection. This must be done before purchasing!
The process typically takes 60-90 days on average for a lender to approve short sale deal.
3 Obstacles to Expect:
1. Multiple debts are owed: If homeowners borrowed from multiple lenders, the "junior lien holders" might block he sale. Lenders often receive little to no money from short sales.
2. Seller can cancel the deal: This happens sometimes when primary lenders asks seller to contribute to closing costs and seller balk.
3. Bank accepts competing offer: This can happen even after EMD, paying for a title search, a home inspection, etc.
With all the challenges and delays when buying a Short Sale home:, potential buyers shouldn't be emotionally invested in a transaction and can shrug off any delays. The potential buyer should also not even care if it falls through.
- finding a great deal
-likely to be in good condition
-many challengers happen because the homeowner isn't making decisions about the transaction
-Lender or lenders hold home and make all the decisions
-To find one, the homeowner needs to have negative equity- the home mortgage balance is higher than the property value.
-To qualify for a short sale home, the home owner must prove financial hardships; hardship letter, pay stubs, etc.
-Short sales are given lower priority. Paperwork is being processed by lender that already knows it's lost money.
-Can take weeks or months to make a decision on an offer. Lender can make a counteroffer ( you can refuse, accept, or counter back and restart the process).
Home seller after the sale:
-lender may forgive the debt
-lender may pursue deficiency judgement against borrower through courts in an effort to recover the shortfall
wrecked credit, but will recover quicker than a foreclosure