RENT OWN SELL
Newyork
RENT OWN SELL
Newyork
A short sale might catch your immediate attention, but take it with a grain of salt. There are, of course, advantages of buying a short sale property but the cons outweigh the pros. Before investing your life’s savings in buying a short sale property, first, educate yourself about what it is and how it works.
1) What Does Short Sale Mean
2) How Does A Short Sale Work
3) Disadvantages of Buying a Short Sale Home
Here’s some key information to know about a short sale in real estate.
A short sale in real estate is when the owner sells their property at an amount less than what’s due on the mortgage. This may happen when the owner feels financial strain from paying the mortgage payments, and interest rates have risen such that the payment amounts are no longer doable.
The bank must consent to a short sale and the property is usually sold to a third party. The difference between the loan and the sold amount remains debatable.
In most cases, the bank forgives the difference, but there have been instances in which the bank pursues the owner for the remaining loan amount.
In some states, the difference is legally forgiven on short sales. When the property sells, the difference goes directly to the bank and not the homeowner.
As we’ve mentioned, a short sale occurs when a home is sold at a price less than what’s still owed on the home loan. For example, let’s say a property is being sold for $100,000 but the owner still owes the bank $120,000 on the home loan.
The difference of $20,000 is considered a deficiency. Closing costs and other sale expenses also add to the deficiency amount.
However, before selling the home as a “short sale,” it’s mandatory to get written permission from the lender. This is called “pre-foreclosure.” The bank or lender also requires documents that prove selling the property is a viable solution.
It makes sense because the bank is going to take a financial loss on the short sale. From an investment perspective, the investor is selling the property due to the looming danger of a decrease in property value.
It’s illegal for lenders to discriminate on the basis of religion, sex, or race. If you do feel you are being discriminated against during this process, file a complaint with the U.S. Department of Housing and Urban Development (HUD) or with the Consumer Financial Protection Bureau.
A short sale doesn’t affect the seller’s credit rating much, but it still hurts the seller’s interest. You’ll have a note on your credit report that says “not paid as agreed,” which will negatively impact your credit score. Therefore, a short sale should only be done as a last resort.
If you want to buy a property quickly, then buying a short sale might not be your thing. It may take several months to get approval to buy the property. There are several factors that impact the length of the process and how many lenders will be involved in the sale.
In conventional home sales, the homeowner has the sole responsibility of agreeing to the terms of a sales deal with a buyer. This is not the case with a short sale. In a short sale, the lender also has to agree to the deal.
Since the lender stands to take a financial loss due to the short sale. They probably won’t be welcoming of the short sale approach. The process becomes even more complex when there are multiple lenders involved.
Even though the seller has accepted your offer, it doesn’t necessarily mean that the lender will agree. The bank may reject the offer considering the offer is too low. As a counteraction, they may completely reject or extend the counteroffer with an amount that suits the lender.
Most of the time, lenders agree to all-cash offers or at least larger down payments. They are already taking a loss on the loan and do not want to increase their risk.
So, they try to reduce the risk by requiring a larger down payment or an all-cash payment at the time of sale. This might be a dealbreaker for you if you can’t afford to pay a large down payment all at once.
