Buying a Short Sale: Tips and Tricks for the Discerning Buyer

Buying a Short Sale: Tips and Tricks for the Discerning Buyer

What to Know About Buying a Short Sale HomeLooking to buy a property that is selling short could be a great way to get a better price on a home that you might not otherwise be able to afford. You should be prepared for a more complicated process, however. Here’s what you need to know.

Why Are Short Sales More Difficult?

A short sale means that the seller is offering the home at a lower price than what they owe on the mortgage. This makes that once the sale is complete and the real estate agent has been paid, there will be less to pay off the mortgage lender or lenders than the total amount of the mortgage. It complicates the process because the lender has to give approval for the sale price before the seller and buyer can close on the sale. In some cases, there may be more than one lender involved, and they all have to agree.

Prepare for a Longer Buying Process

The more interested parties you involve in a home sale, the longer it takes and the more likely it is to fail. Home sales can fall through for a number of reasons, but short sales are more likely to fail because one or more of the lenders did not accept the buyer's offer. If you are looking specifically to buy short sales, you should be ready for a longer buying process. You may have to make offers on a larger number of properties before you find one with a lender that is ready to work with you. If you have mortgage pre-approval and locked in an interest rate for a short term, you might consider casting a wider net at first so that you have a better chance of concluding the sale before the time runs out.

Get Your Situation in Order

Although many lenders take a longer time to grant approval, sometimes you happen across a property with a seller and lender that are more than ready to conclude the process. In this case, you might be able to land a fantastic price, but you must be prepared to move quickly. If you find a sale that expects to close in weeks or days, make sure that you can accommodate that before you make an offer.

Negotiate With the Seller

When you engage in a typical home sale, you mostly have to work with the seller and your own lender. With a short sale, the seller has fewer options to negotiate with you. This is especially true if the seller is a friend or relative of yours. You are free to set a number of contingencies, but bear in mind that the seller must obtain lender approval for all of them, especially those that expect the seller to shoulder additional expenses.

Wait for Lender Approval

Since each lender has to sign on the offer before the sale can proceed, each step in the process could take longer. However, you are not simply bound by the whims of each lender. In your purchase contract, specify the amount of time you are willing to wait for a lender’s answer at each point of approval. This way, you have the ability to walk away from the sale if it seems that the lender is taking far too long to make a decision.

Buying a short sale could be a great deal, but it is often a bigger hassle. With these tips, you will know what to expect and can plan accordingly.

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