If you are looking for a bargain buying a home and you have plenty of time. Then a short sale offers the opportunity to acquire instant equity in a home. In a short sale, the lender allows the home to be sold for less than the mortgage balance. As a result, prices often are affordable. But short sales are complex and can take a lot of time. Short sales are complicated because the final price must be approved by the both the home seller and the seller’s lender. So short sales require extra time to move from an offer to a settlement – sometimes as long as six to nine months.
The only drawback is timing because some banks are still notoriously slow at approving an offer. Buyers who need to move within a specific timeline because their ease is expiring or a school schedule may not want to make an offer on a short sale.
According to Core Logic, short sales represented about 8 percent of all home sales in 2011.
Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey, said the share of short sales purchased by first-time buyers dropped to 40 percent in August 2011 after peaking at 54 percent of all short sales in November 2009.
A short sale can be a great way to get an undervalued property, but buyers need to make sure that both agents, including their buyer’s agent and the listing agent, are experienced with short sales. In Texas there is a short sale addendum which needs to be part of the contract. The addendum allows the buyer to terminate the contract and keep their earnest money if the lender has not responded by the date listed on the addendum. I recommend that buyers put in a date which gives the lender up to 30 days to approve the offer.
First-time buyers should interview real estate agents to find a buyer’s agent with short-sale experience in addition to a deep knowledge of the local real estate market, so they recognize the value in a specific property. Short sales are complicated because the final price must be approved by both the home seller and the seller’s lender.
Buyers sometimes think they should never pay full price, but they need to be realistic and recognize that a short sale may already be discounted. Short sales are generally a bargain because the sellers are motivated and want relief for their financial situation, and most banks are motivated to accept an offer. But sometimes the short sale is already priced below market, so a low offer may not be approved.
In addition to the uncertain timing of a short sale settlement, buyers must be aware that the homes are typically sold as is, meaning the seller won’t make repairs. A home that needs repairs may not qualify for Federal Housing Administration financing, which is popular with many first-time home buyers because of the low 3.5% down payment requirement.
Buyers should have their agent find out about the condition of a property, so they can estimate whether FHA financing will work. FHA rules have stricter definitions of livable condition, but if the home is in good condition, it should be approved. If the home needs repairs, buyers can opt for FHA 203(k) financing to wrap repair costs into their mortgage.
Buyers with conventional financing and at least 5 percent for a down payment will be in a better position for a short sale approval because they are considered less risky borrowers. The biggest risk for buyers, besides timing problems, is they may put in an offer on a short sale, become emotionally attached and then the deal falls through. Some buyers know they don’t have the risk tolerance for that experience. As with any other home purchase, buyers should be both
financially and emotionally prepared for their purchase with a preapproved mortgage, cash for a down payment and plenty of patience.
Call Bill Edge at 713-240-2949 to see Houston homes in 24 hours or less
Source: Houston Chronicle, Bankrate.com