If you are planning to buy a home and want to get a good deal (and who doesn’t?) you may have considered purchasing one sold through short sale or foreclosure. Often, a home sold one of these ways will cost less than a comparable home sold the old-fashioned way, but both can present unique challenges you should be aware of before deciding to go this route.
Under a short sale, the property is sold for less than the amount owed on the mortgage. The first part of purchasing a short sale works the same as for a regular sale – you submit an offer to the seller, who can accept, counter or reject it. If the offer is accepted, it must then be approved by the seller’s lender(s). When deciding whether to accept or deny a short sale request, the lender typically considers the seller’s financial situation and what the market value of the home is. They may also require you to be pre-approved for a mortgage. It can take lenders weeks or even months to respond to an offer, and there is no guarantee they will say yes.
Do these complications make purchasing a house through short sale a bad idea? If you need to be moved into your new home within a month, then yes. However, if you are able to wait and not get too emotionally attached to the home, taking a chance on a short sale can nab you a great deal. And the process can be less trying if you use a real estate agent that has experience with short sales and continue to look at other properties so that you have a back-up if the offer falls through.
When a lender forecloses on a home and there are no outside bidders at the foreclose auction, it reverts back to the lender, who will typically try to sell it through a real estate agent. The price is usually good, but because the seller is an institution, it can sometimes take longer for them to respond to your offer and be ready for closing than if you purchase a home from an individual seller. However, the waiting time is generally less than if you go the short sale route.
Foreclosed homes are sold as is. You can (and should) have a home inspection done, but the lender is unlikely to be willing to do any repairs themselves before closing. Also keep in mind that lenders typically know little or nothing about the home’s history and may be exempt from state disclosure laws (which dictate what facts about the home have to be disclosed to the buyer).
Being a savvy buyer and understanding the risks and rewards involved can help you determine if purchasing a home through short sale or foreclosure is the right move for you.