Found A Home That Is A Short Sale? 3 Things To Know
Have you finally found the home of your dreams, but discovered that it is a short sale? It is important to know what short sale homes are and how it can affect the home buying process before you move forward with an offer:
Know The Basics of a Short Sale
Many home buyers confuse a short sale with a foreclosure, but they are actually two different things. A short sale occurs when a seller places their home for sale for less than what they owe on the mortgage. The bank must approve the sale of the home and accept less than what is owed on the mortgage, typically accepting no less than the appraised value of the home.
This often happens if a home was bought during the peak of a real estate bubble, and the home declined in value soon after. The seller may be looking to move to a new home and want to sell their current home, or looking to get out of paying the full mortgage on a home that has decreased in value significantly.
Know That Short Sales Can Take A While To Approve
Much of the short sale buying process involves getting approval from the mortgage lender. There will be a lot of waiting for this to happen, and they can accept or deny your offer on the home. Unlike when dealing directly with a seller, it is much harder to negotiate with a lender on a lower price. The appraised value of the home will be a major factor that determines what you can buy the home for.
Therefore, you may not want to time the purchase of a short sale with an apartment lease that is expiring. There is no guarantee when the sale of the home will be approved, which could leave you in a tough situation.
Know That The Home's Value Can Continue To Fall
Another mistake is assuming that you are buying the short sale home at the low end of the real estate bubble. There is no guarantee that the home you buy will maintain the value at which you bought it for. In fact, the value of the home can continue to fall after you purchase it. Be sure to do your research as to why the home decreased in value, and realize you could be in a similar situation as the current owners if you are not careful.