Recently the term “short sale” has become increasingly common among home buyers. This isn’t really surprising since they allow you to buy a home at a great price and you can also take advantage of mortgage rates that are still down near historic lows.
So, what is a short sale? In this article you will find a brief explanation of the process.
Real Estate Short Sale Definition
A short sale in the real estate industry is when the sales proceeds of a property fall short of the balance on the mortgage loan. In other words, the seller of the property owes more than what he or she is selling it for.
The mortgage lender (or bank) also has to agree to discount a loan balance or agree to take less money that what is owed. Typically the owner needs to prove financial hardship before a lender accepts a real estate short sale.
Even though this is not the ideal situation for the owner, it is a much better option than going into foreclosure because a short sale typically doesn’t hurt the owner’s credit score as much as a foreclosure.
Why Would a Lender Agree to Short Sales?
This is a very good question. If you think about it, why would a lender agree to accept less money than what is owed on the mortgage? This is exactly what happens with short sales.
If the owner decides to stop making payments altogether and lets the property go into foreclosure, it could take several months for a bank or lender to take the property back. After the lender takes control of the property, they still have to put the house on the market and it could take months before a house gets sold. Foreclosure is a very expensive process and it is one of the reasons why banks would rather short sell than to go through a foreclosure.
Advantages of Buying a Short Sale
- Get a great deal
- Get a great mortgage rate
- Get through the process with ease (if you have an experienced real estate agent)
Disadvantages of Buying a Short Sale
- Long process
- Homes are sold “As-is”
- The seller can make changes that affect you (like stop making mortgage payments forcing the home into foreclosure)
- Risk of getting your offer rejected by the lender
10 Steps to Buying a Short Sale.
We found an interesting article on MSN Real Estate that listed the 10 steps of buying a short sale:
- Identify potential short sales.
- Do a quick inspection of the property.
- Research home values in the area.
- Find all liens and mortgages.
- Figure out the financing.
- Contact the lender through an experienced real estate agent.
- Complete the lender’s short sale application.
- Assemble the proposal.
- Seal the deal
We hope you found this information helpful. Please let us know what you think!