But what are short sales, and should you buy one?
What is a Short Sale?
A short sale is a house that’s in the pre-foreclosure stage. It means the lender is accepting a discounted payoff from the homeowner to release the owner’s existing mortgage. The seller isn’t necessarily in default (that’s what it’s called when the owner stops making payments on his or her mortgage); it’s simply likely that the home’s value has fallen and the seller owes more than the house is worth.
Even if the price is discounted off the mortgage, that doesn’t mean the home is going to be less costly than it ordinarily would be.
Should You Buy a Short Sale?
As with any other real estate transaction, you’ll need to do your homework before you decide to buy a short sale. Your Realtor® will handle most of the research, but you’re going to want to find out whether there are two loans on the property. Both mortgage lenders will need to release the mortgages—and you could be on the hook for the second one if they don’t release the loan.
Why Do Lenders Agree to Short Sales?
Some money is better than no money, and some lenders will agree to a short sale if the owner is about to go into foreclosure to avoid the headache that brings.
What Happens When You Make an Offer on a Short Sale?
Even if a seller accepts and agrees to your offer, he or she doesn’t have the final say; the lender does. The lender is going to want proof that you can buy the home and that you’re making an earnest money deposit.
It takes time for a lender to approve a short sale. In fact, very few close within the same timeframe that traditional real estate transactions do. It can take several months for a lender to agree to your offer.
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