Some home buyers looking for a good deal in the Trump era of rising home prices may consider buying a short sale. If you are looking at a property that is listed well below the market value for that neighborhood, you should talk to your real estate agent to determine if it is a short sale. These deals can be a bargain, but getting one to close on a timely basis can be challenging. So, before making an offer on buying a short sale, make sure you know what you are doing. This article will describe how to buy a short sale home in the Trump era and how to get the best deal.
Overview on Buying a Short Sale in 2018
A short sale property is one where the lender is willing to take a discounted payoff to release the existing mortgage on the home. Now just because the property is listed with possible short sale terms does not mean the mortgage lender will take your offer, even if the seller himself accepts it. This is because the seller must qualify for the short sale. One of the key parts of making a short sale work is working with agents who are experienced on the buy and sell side of short sales.
Also, noted that the seller does not need to be in default on their mortgage for the lender to consider a possible short sale. The lender could take a short sale if the seller is current on payments, but the value is less than the mortgage. The seller may owe far more than the home is worth, so the discounted price you see could bring the price more in line with the current market values.
Look at Public Records
It is important to do a lot of research before you offer to purchase a short sale. Your agent can determine who is on the title for the property, whether a foreclosure has been filed and how much is owed to each lender. This is important because you will then be able to make a reasonable offer. The banks are not under pressure to accept a short sale, so your offer needs to be within reason.
If the home has two loans on it, there could be an issue. The first mortgage lender position is over the second lender, unless the second lender has no interest in foreclosing. If the seller has a balance of $160,000 owed on the first and $40,000 on the second-mortgage, offering $160,000 leaves no money for the second loan. The first must give up something to the second to get cooperation. But it may not be as much as you think; in some cases, $3,000 or $6,000 could be enough.
Work with Short Sale Experienced Agents
If the listing agent has never done a short sale, that is not good, but it’s a major issue if your own agent has never done a short sale. It is imperative to not go into a possible short sale without an experienced agent on at least your side of the transaction. Short sales are always complicated, and you want an agent representing you who can deal with those surprises and complications.
A classic issue with short sales is for last second problems to crop up with paperwork with one or both lenders involved in the deal. This can prevent the deal from closing on time or closing at all.
Qualify the Property and Mortgage Lender for a Possible Short Sale
The lender will probably not agree to the short sale unless the owner of the home has no equity and cannot pay the difference between the sales price and the current loan. The seller will need to give a hardship letter to the lender, and sellers may have to pay taxes on the debt that has been forgiven.
One thing to watch out for is anyone in the transaction suggesting anything illegal to get the deal done. For example, sellers have been known to demand the buyer give them cash under the table (a bribe) to get the right to buy the property. This is completely illegal and is fraud. Do not get involved in a possible short sale where the seller is wanting to do anything illegal to get the deal done. In most short sales, the seller does not receive any money because the mortgage lender is operating at a loss.
Make sure you investigate your options on a conventional and FHA loan for a short sale. In most cases, you will need to find a private money loan to finance a short sale.
Submit Documents and Offer to Purchase a Short Sale
After the seller accepts the offer, the listing agent forwards the offer to the lender to be approved. There is no deal unless the lender accepts it. The lender may want a higher offer from you. The lender also will want to see that you are pre-approved for the mortgage. You should have a pre-approval letter that is dated within the last 30 days.
The offer should be contingent upon the lender accepting the deal. Give the lender a certain period to give you an answer, and you should be able to cancel the deal if you want to. The decision from the lender can take from a few weeks to a few months.
Getting a short sale to the closing table in a reasonable time is a challenge. But great deals can be had when considering buying a short sale, so work with an experienced real estate agent to get a good short sale done in the Trump era.
References: Before Buying a Short Sale. (2016). Retrieved from https://www.thebalance.com/before-buying-a-short-sale-1798232