Nearly everyone has become familiar with the term ‚Äúforeclosure‚Äù during the recent housing crisis.¬† But what many potential buyers may not be familiar with is the term ‚Äúshort sale‚Äù and what it involves.¬† Short sales come up when a lender makes an agreement with a homeowner to sell the property for less than what is currently owed.¬† These types of sales are generally beneficial to sellers who have become financially troubled or have discovered that they are underwater on the existing loan.¬† When a short sale is agreed upon, the lender agrees to forgive the remaining balance on the loan allowing the seller to walk away from the home without owing any additional money.
As the seller of a short sale it is likely that your credit rating will experience damage, but it will not be as severe as if the home had gone into foreclosure.¬† Sellers will also leave the deal without profiting from the sale of their home, which can make it difficult for them to find another home.¬† For a buyer purchasing a short sale home they are often able to get the home at a reduced price.¬† While they may get the home relatively cheap, they may have to spend additional funds to fix up the home.¬† This may mean that the money they saved purchasing the home for a lower price will likely go toward making necessary repairs on the property.
There are some things that you should consider before purchasing a short sale home. There are two situations that can almost guarantee your purchase of a short sale home will not end well.
- No Default On Loan ‚Äì Lenders will generally not agree to the terms of a short sale if the homeowner has not defaulted on the loan.¬† Until the homeowner receives a notice of default, the lender will not even consider a short sale.
- Bankruptcy ‚Äì If a homeowner has filed for bankruptcy a short sale is not going to be possible.¬† This is due to the fact that short sales are considered a collection attempt and under bankruptcy any attempts to collect on a debt are prohibited.
Purchasing a short sale home can be a troublesome process, but what leads many buyers to do it is the amount of money that can be saved.¬† They typically get the property for a drastically lower price than it was being sold in the regular manner.¬† Buyers may also benefit from receiving beneficial financing terms when purchasing a short sale home.¬† This is primarily attributed to the fact that lenders simply want to get paid for the loan they provided the owner.¬† If you are willing to put up with a few headaches along the way, purchasing a short sale home can be beneficial.