Whether you’re an investor or a prospective home buyer, you’ve probably heard the team “short sale” but just might not be that familiar with the process. Before you ask, no,
To help you get your footing on the subject, let’s take a few minutes to get you up-to-speed on the term and what all the short sale process encompasses.
In a nutshell, a short sale means that a home is sold for less than the outstanding mortgage. Simply put, the seller will end up ‘short’ on paying back the lender; however, the lender has agreed to accept the lesser amount owed.
While not the norm, short sales aren’t totally uncommon or unheard of in today’s marketing. In fact, according to RealtyTrac, about 5 percent of all US single-family home and condo sales are short sales.
Typically a short sale will arise if the homeowners are experiencing financial issues that make it impossible for them to pay their mortgage. In order to avoid foreclosure, they are needing to sell their home; however, they are finding it difficult to sell their home at a price that would cover their current outstanding mortgage.
Buyer Benefits of a Short Sale Purchase
A short sale property can be a bargain for potential home buyers or investors, but it will require a bit of extra work and can take 90 to 120 days. If you’re looking at a short sale property, be prepared to jump through additional hoops. Because of the extra pressure and requirements, short sales aren’t typically recommended for first-time home buyers.
Why extra hoops and a longer timeframe? Lenders, while in agreement to the short sale process, will be covering the closing costs a home seller usually sells. As such, they will often counter with their own demands in an effort to raise their bottom line. Dealing with a lender can extend the overall process timeframe.
The Difference Between Foreclosure and Short Sale
People often confuse foreclosures with short sales, and while they share some similarities in that both typically happen to homeowners in distress, the process and consequences are very different.
One difference is that a foreclosure is typically a faster process as lenders are eager to recoup the costs they are currently incurring on the property via way of unpaid mortgage payments and house upkeep. For one, foreclosures typically happen very quickly, since lenders are eager to recoup the costs incurred by the unpaid mortgage.
Secondly, a foreclosure will negatively impact an individual’s credit score by appearing as derogatory markings on their credit report. Because of this, individuals with a foreclosure on their credit report will often find they are not likely to qualify for another mortgage for at least five years.
While selling a home as a short sale is hardly ideal, many experts argue it’s smarter than pursuing more drastic measures like foreclosing on a house.
Should I Buy a Foreclosure Home?
While foreclosures can also be bargains, buyers should know that a foreclosure also comes with a lot more risk than a short sale. One of the biggest risks is that foreclosures are often sold at auction at a courthouse, sight unseen. Buyers will inherit all liens and any issues tied to the property.
When done right, a short sale is a better option for both the buyer and the sell.
Wondering about selling your home via the short sale process or interested in touring a short sale property you’ve seen on the market? Contact me today!