Buying a Home in the Midst of the Mortgage Meltdown

Buying a Home in the Midst of the Mortgage Meltdown

Home-buying can always be considered a daunting task. At a time where many are facing foreclosure, there are still some people on the hunt for their “dream home.” One option that is making it’s way into the home-buying forefront is the short sale. Short sales are an option to homeowners unable to make their monthly mortgage payments that may prevent them from going into foreclosure. The seller must hire an agent to sell the property AND get the bank to agree to taking a loss on the property (the bank must weigh the cost of foreclosure against the cost of selling the property for a loss in a short sale situation).

Because short sale homes are generally listed LESS than the amount the original homeowner owed to the lender, home-buyers may be able to get a great deal. The deal is probably the greatest pro involved with purchasing a short sale – you may get more house for your money than you originally intended to. Because short sale properties have not gone into the foreclosure process, you are also likely to get a property that is being maintained and is in good condition.

As the saying goes, however, if something is too good to be true — it probably is. Where the deal is the biggest pro of purchasing a short sale, time is likely the largest (and most stressful) con. Consider the process:

Listing: Once the seller decides to pursue a short sale, their listing agent will place the house on the market to gather offers – there is no standard time-frame on how long this could last, it may be months before your offer is sent to the bank.

Appraisal: Upon receiving your offer (and the offers of everyone else interested in the house), the lender will order an appraisal on the home to determine market value.

Decision: The appraisal will assist the lender in determining whether or not any of the offers presented are approved or rejected. The lender may decide that the offers they have received will cost them more than if the home goes into foreclosure. If offers are rejected, the buyers have the opportunity to resubmit another offer, at a higher price for review.

If the time:deal ratio works for you, short sales may be a great option. There are are few more things you should know before pursuing a short sale:

  • Generally, you will need to put down a deposit and submit a pre-approval letter from your lender with your offer.
  • Properties are, for the most part, sold ‘as is’ with a right to inspect. This means that the lender will not provide you with protection plans, pest inspections, etc., so it is important that you hire an inspector to ensure that the roof, sewers, foundation and so forth are in good condition – you should make your offer contingent on the inspection.
  • The bank is in control. Have a licensed real estate agent, preferably one with experience with short sales, or a real estate lawyer on your side before making your offer.

Weighing the pros and cons is an important part of making any large investment – take your time and you will find the right house. Good luck!

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