Tips for Buying a Home in a Short Sale

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The Federal Savings Banks informs readers of when and how short sales, which still represent a large proportion of sales, are beneficial, which can also be a win for the lender.

The fastest growing mortgage bank in the nation. VA and FHA Home Loans.

The Federal Savings Bank | VA and FHA Home Loans

Short sales present less risk than foreclosed or vacant homes.

The Federal Savings Bank thinks short-sale properties are a great way to save money on a new home purchase. Since short sales are still a large proportion of sales in the housing market these days, it’s important to understand to their use for those in financial trouble.

When a homeowner is having trouble making his or her monthly mortgage payments, a short sale is an option that can prevent the borrower from defaulting and the home from being placed in foreclosure and eventually repossessed by the bank. After negotiating with the lender, the homeowner gets permission to sell the property at a price that is lower than the outstanding amount left on the mortgage. Although the bank loses money on the deal, it still gets some of the loan amount back, compared to repossessing the home where little is recovered and more money is paid by the lender for the home's property taxes and upkeep.

Short sales present less risk than foreclosed or vacant homes, which tend to fall into neglect once the owner is required to vacate the premises. Given that the homeowner is likely still living in the property, there's a smaller chance that the home will be vandalized and missing valuable building materials such as copper wiring.

There are many benefits to purchasing a short sale, but it is important to keep a few things in mind:

The timeline will be longer than buying a normal home. While short-sales present the lender with a better opportunity to recoup its funds, the bank isn't excited about the deal. As such, be prepared for a long process between making an offer and closing on the property. Not only does the homeowner have to get permission to even list the home as a short sale, but he or she also has to get all offers approved by the lender, and banks can take months to issue an approval. Additionally, other lenders that own liens on the house have to approve the sale, which could extend the timeline.

Getting a property inspection is crucial. Short sales are sold "as-is," meaning that you will have to pay for any repairs. Have a professional evaluate the home to help you determine if any necessary fixes are expensive enough to offset what you save on the price.

Banks don't pay for extra costs at the closing table. When buying a home through the traditional process, you can often convince the seller to shoulder some of the closing costs. However, approving lenders for short sales aren't likely to make such an allowance, as doing so means losing more on the investment.

Short sales can fall through at any time. There are various reasons why the transaction can fail, even after the bank has approved an offer. These setbacks can result from the seller or the bank, and keeping the possibility of problems on the radar can help with adjusting more easily should things go awry.

Properties with lower equity are good targets, but getting harder to come by as the proportion of short sales declines. If the home has some value, the lender stands to benefit more from a foreclosure than a short sale and won't approve the transaction.

For information about getting a low cost mortgage to finance your short sale purchase, contact The Federal Savings Bank, a veteran owned bank.

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Giorgio Urbano Ferrero
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