Foreclosure (or Repossession) – Foreclosure is the legal process by which the mortgaged properties may be sold to pay off a mortgage loan that is in default. A foreclosed home is a property that the mortgage lender has taken into possession. These homes are typically winterized (plumbing drained, water turned off) to reduce damage to the home.
Short Sale – Short sales are pre-foreclosure homes. The mortgage lender has agreed to accept less than the outstanding mortgage balance to avoid foreclosure proceedings. The lender may forgive the difference or the existing homeowner may have to make arrangements to settle the remaining amount.
Now that you know the basic definitions, you can begin to understand how these types of homes can offer big opportunities (and have the potential to cause headaches) for potential home buyers. If you’re open to considering these types of homes on your search – remember these tips:
- Be Patient – As with any proceeding where there are multiple parties and legal entities involved, it’s important to remember that these types of purchases can take time. If you’re only looking at foreclosures and short sales, it may take you a long time to find a home in the condition that you want. Once you find your dream home and submit your offer, it can take weeks or sometimes even months before you hear back from the bank. While foreclosures usually close faster than short sales, sometimes foreclosed homes are in worse shape. But the benefit of the home that is in better shape is sometimes outweighed by the lengthy process. With short sales, numerous parties are involved so gaining all the necessary approvals takes longer. Knowing this before you head into the process may make being patient easier.
- Inspections are a Must – Inspections are almost never required but always recommended when buying a home. With short sales and foreclosures, inspections are critical – even if it’s your dream home and everything looks perfect on the surface. Skipping an inspection can cost you thousands if you find out later that the roof needs to be replaced and the plumbing is a wreck. When you buy a short sale or foreclosure, you are buying the property as-is. You also have to think about the type of mortgage you are planning to get. If you are hoping to get an FHA loan, the house must meet livability standards – and many of today’s foreclosures and short sales unfortunately don’t live up to that standard. Talk to a Home Loan Expert if you have any questions about government standards and regulations during the buying process.
- Make the Right Offer – Just because a house is a short sale or foreclosure doesn’t mean you’re going to get it for nothing. If a house is listed at $200,000, the chances of your offer of $15,000 getting accepted is unlikely. Banks are still looking to get market value on property. Make sure your offer is something the bank will take seriously, especially when it comes to short sales. Foreclosures and short sales actually often sell for more than the asking price.
It is possible to find a great home at a great price in today’s market – especially when foreclosures and short sales are part of your house hunt. Remember to protect yourself and get ready for what could be a long wait. If you’re shopping for a short-sale, looking for “bank-approved” short sales or short sales involving only one lender can help expedite the process. With a little patience and work, you will be in your dream home in no time.
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