How to Buy a Short-Sale Home

If you’re a prospective homebuyer, you’re probably already somewhat familiar with the terms “buyer’s market” or “seller’s market.” The former situation occurs when the housing supply exceeds the demand, a situation that favors the buyer. But when the housing supply is more limited, a homeowner may receive multiple offers on their home, a market more favorable to the seller.

Perhaps you’re looking for a home and are finding that you’re often outbid. In a tight housing market, sellers may even have offers come in above the initial asking price. Perhaps you’re being priced out of the market and are looking for alternative options. Or maybe you’re interested in buying some investment properties and want to get the best bang for your buck.

You’re in luck! Short sales often offer buyers the opportunity to purchase homes below market value. If you’re eager to buy a home but haven’t found the right one just yet, expand your horizons by looking at short sale listings. But you may be wondering what a short sale is and how to buy a short-sale home. We’ll show you how it all works so you can decide if this might be the right option for you.

What Is a Short Sale?

A short sale is basically a sale in which a lender agrees to accept a purchase price for the home that is less than the outstanding balance of the homeowner’s mortgage. All the proceeds from the sale then go to the lender so that the homeowner can settle up as much of the outstanding debt as possible.

A key difference between a short sale and a foreclosure is that, in the latter situation, the lender seizes the home from the owner who has defaulted on the loan. On the other hand, a short sale is done with the homeowner’s cooperation so that the homeowner can pay off a portion of their existing debt, thereby avoiding foreclosure.

What happens to the remaining balance is up to state law and the lender’s discretion. In some cases, the lender may simply forgive the remaining balance. Other times, the lender may file a judgment against the borrower to collect all or a portion of the remaining debt.

Short sales are often a compromise between the homeowner and the lender. The homeowner doesn’t take as much of a hit to their credit rating as they likely would if the home went into foreclosure, and the lender is able to recover at least a portion of the outstanding balance on the loan. However, it is ultimately the lender’s decision as to whether to proceed with a short sale or not.

How to Buy a Short-Sale Home

Some short-sale homes may be listed on MLS, the multiple listing service. Since real estate agents and other industry professionals are usually the only people with access to this database, you should look for a real estate agent that has experience with short sales. They will help you identify short sale listings and guide you through the best way to proceed with a short sale.

If you want to get the ball rolling and start looking on your own, you can check other real estate sites like Zillow or Trulia. Keep in mind that the listing may not always use the term “short sale.” However, there are oftentimes other hints in the listing that can help tip you off. As the finance site, the Balance, notes, phrases such as “subject to bank approval,” “notice of default,” “give the bank time to respond,” “preapproved by a bank,” “headed for auction,” and “third-party review required” could all be signs that you’re looking at a short sale listing.

Just as you want to look for a real estate agent who is experienced in short sales, you should look for a real estate attorney who is experienced in them as well. An attorney can help you check public records, for instance, to ensure that the property is clear of any liens other than the existing mortgage. If the seller has other lenders or creditors with liens on the property, each one must agree to the short sale, and that could complicate matters. Working with the right team of people, from real estate agent to attorney to lender, is important when buying a short-sale home.

What You Need to Know

While short sales can be an excellent alternative option for buyers who are priced out of the market, it’s important to do your research before making an offer on the home. The housing market sometimes fluctuates, for instance, and values drop. The outstanding balance on the mortgage could be greater than the home’s value, so you’ll want to make sure you have an appraisal and home inspection done to determine the home’s actual worth and to see if you’re really getting a good bargain.

In fact, when making an offer on a short-sale home, you should make it contingent on the outcome of the home inspection. You should also make it contingent on the lender’s acceptance of your offer.

Since short sales often take longer than typical home sales, you may also want to outline in the offer letter that the lender has a set time period to accept the offer or you are free to withdraw it and move on. This will encourage the lender to act more quickly and will prevent you from waiting an unreasonable amount of time for a response.

If you’re looking to close on a home quickly, a short sale may not be right for you. But if you have time and patience, a short sale may provide you the opportunity to find a quality home at an affordable price.If you live in Washington State and you’re looking to get pre-qualified for a home loan purchase or are ready to move toward closing, contact Solarity Credit Union for your home loan needs. Buying a short-sale home is all about having the right team in place.

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