Six Questions to Ask Yourself before Buying a Short Sale
Posted 08-08-2011 at 10:41 PM by Sunshine Rules
Considering the number of short sales on the market and the potential for “bargains,” many buyers today are interested in purchasing a short-sale property. However, not all buyers are good candidates for short sales. So how do you know if a short sale is right for you?
Here are six questions to ask yourself if you are considering purchasing a short-sale property:
(1) If you are going to obtain a mortgage, are you pre-approved for a loan?
In a short sale, the seller’s lender(s) are looking for buyers with as few contingencies as possible. Most will not consider a buyer obtaining a mortgage unless that buyer is already pre-approved for the new loan. You must have your financing in place so that you can be ready to close quickly once the sale is approved by the seller’s lender(s).
(2) If you will be paying cash, are you willing to submit proof of funds?
Again, the seller’s lender(s) are looking for concrete evidence that you are able to purchase the home at the price you are offering.
(3) Will you need to include a contingency in your contract that the purchase of this short sale property is contingent on the close of the sale of another home?
If the answer to that question is yes - stop! Lenders don’t like contingencies, especially ones like this. Purchasing a short sale is probably not an option for you at this time.
(4) Do you have a definite time frame within which you need to purchase or move, or can you be more flexible?
Flexibility is an important quality in purchasing a short-sale property. Because the seller’s lender(s) must approve of the sale before you can close, it may take weeks or even months before that lender responds back. Short sales often have delays that result in changing the short sale approval and/or closing dates.
(5) Do you understand that the seller’s lender(s) will be making the final decision as to price and terms of the sale?
The seller cannot close without his/her lender(s) approval. Sometimes the lender(s) respond back wanting a higher net to them, which translates into a higher sales price for you. At that point you can agree to make the necessary changes to the contract or walk away from the deal. Dealing with uncertainly is key to successfully purchasing a short sale property.
(6) Are you willing to purchase the property “as is” ?
Because the seller in a short sale is in financial difficulties, these properties are usually sold “as is with right to inspect,” meaning you have the right to have the property inspected by a licensed home inspector during the designated time period, but the seller will not be making or paying for repairs if items are found that need to be repaired.
Purchasing a short sale property that is in less than perfect condition may not be possible for buyers looking to get either a FHA or VA mortgage as both of those types of mortgages have specific condition requirements that the homes must meet.
If you answered “No” to any of the above questions, you may want to rethink purchasing a short-sale property.
Once you’ve determined that you are a good candidate for purchasing a short-sale property, the next step is to find a qualified real estate professional that is experienced in working with short sales. Many Realtors working with short sales have become certified as a Short Sales & Foreclosure Resource, which is the only distressed property certification for real estate professionals recognized and endorsed by the National Association of Realtors. Look for the SFR designation behind the agent’s name.
Short sales can be a great opportunity to find a home at a competitive price. It can also be a major, several months long headache. Having a good understanding of what factors lead to a successful short sale will help you through the process.
Here are six questions to ask yourself if you are considering purchasing a short-sale property:
(1) If you are going to obtain a mortgage, are you pre-approved for a loan?
In a short sale, the seller’s lender(s) are looking for buyers with as few contingencies as possible. Most will not consider a buyer obtaining a mortgage unless that buyer is already pre-approved for the new loan. You must have your financing in place so that you can be ready to close quickly once the sale is approved by the seller’s lender(s).
(2) If you will be paying cash, are you willing to submit proof of funds?
Again, the seller’s lender(s) are looking for concrete evidence that you are able to purchase the home at the price you are offering.
(3) Will you need to include a contingency in your contract that the purchase of this short sale property is contingent on the close of the sale of another home?
If the answer to that question is yes - stop! Lenders don’t like contingencies, especially ones like this. Purchasing a short sale is probably not an option for you at this time.
(4) Do you have a definite time frame within which you need to purchase or move, or can you be more flexible?
Flexibility is an important quality in purchasing a short-sale property. Because the seller’s lender(s) must approve of the sale before you can close, it may take weeks or even months before that lender responds back. Short sales often have delays that result in changing the short sale approval and/or closing dates.
(5) Do you understand that the seller’s lender(s) will be making the final decision as to price and terms of the sale?
The seller cannot close without his/her lender(s) approval. Sometimes the lender(s) respond back wanting a higher net to them, which translates into a higher sales price for you. At that point you can agree to make the necessary changes to the contract or walk away from the deal. Dealing with uncertainly is key to successfully purchasing a short sale property.
(6) Are you willing to purchase the property “as is” ?
Because the seller in a short sale is in financial difficulties, these properties are usually sold “as is with right to inspect,” meaning you have the right to have the property inspected by a licensed home inspector during the designated time period, but the seller will not be making or paying for repairs if items are found that need to be repaired.
Purchasing a short sale property that is in less than perfect condition may not be possible for buyers looking to get either a FHA or VA mortgage as both of those types of mortgages have specific condition requirements that the homes must meet.
If you answered “No” to any of the above questions, you may want to rethink purchasing a short-sale property.
Once you’ve determined that you are a good candidate for purchasing a short-sale property, the next step is to find a qualified real estate professional that is experienced in working with short sales. Many Realtors working with short sales have become certified as a Short Sales & Foreclosure Resource, which is the only distressed property certification for real estate professionals recognized and endorsed by the National Association of Realtors. Look for the SFR designation behind the agent’s name.
Short sales can be a great opportunity to find a home at a competitive price. It can also be a major, several months long headache. Having a good understanding of what factors lead to a successful short sale will help you through the process.
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