Qualify to Buy a Short Sale

Home buyer’s guide: how do you qualify to buy a short sale?

By Deena Weinberg
Contrary to popular belief, not everybody qualifies to buy short sale property. Not only do homeowners need approval from the lender (the bank) to initiate a short sale process, but any offer made by home buyers must be approved by both the seller and the lender. To qualify to buy a short sale, home buyers and the lender must agree on the purchase price, on terms of the agreement and on the settlement statement. If the lender is unsatisfied in any way, that can hold up the process for weeks or even months. Remember: Since through a short sale process the lender is already agreeing to accept a payoff that is less than the balance owed on the property by the current homeowner, banks are wary of losing even more money. As a result, they exercise great caution before accepting an offer on a short sale.
What is a short sale?
Here is a quick recap on short sales: When homeowners reach such a financial low that they owe more on their mortgage than their home is currently worth, they are said to be “upside down” or “underwater” on their loan, and they face imminent threat of the bank seizing their property (foreclosure) and auctioning it to the highest bidder. Rather than foreclose and suffer a credit blow, homeowners who can prove to the lender that they are in serious financial trouble may qualify for a short sale process. In a short sale, the lender allows the homeowner to sell the property for less than what it is currently worth and to walk away from the home. While the lender suffers a loss on the investment, the bank is saved the greater hassle of foreclosing. In turn, homebuyers and investors benefit from purchasing a property at below market value, making it a “win-win” situation all around.
Waiting for approval for a short sale
If you’ve been shopping for a new home, you’ve probably been excited about the reduced price tags that typically accompany short sale properties. Before you jump on the bandwagon to make an offer, consider a few issues. One of the biggest disadvantages of buying a short sale is the length of time it may take for you to qualify as a buyer ” that is, for the lender to accept your offer and approve the deal. Even if the seller accepts your offer immediately, a short sale cannot go through unless it is approved by the lender. Since the bank is already losing money on the short sale, it typically takes several months to weigh the pros and cons of approving a short sale versus the time and costs involved in a foreclosure.
Beware of extra fees
Once you begin short sale negotiations, you may discover that the lender holds you responsible for extra fees that weren’t included in the sale price. While custom holds that the seller pays closing costs, some lenders won’t qualify you to buy a short sale property unless you agree to pay closing costs. You might also discover other hidden liens the seller owes on the property that the lender insists you pay. If you are seriously considering investing in a short sale, experts advise hiring a real estate attorney to make sure you are protected from extra fees that might crop up and to help you through the red tape involved in the deal.
Number of loans
Before making your offer, find out if more than one loan has been taken out on the property. If more than one loan exists, you will need to get approval from each of the lenders in order to qualify for the short sale. The more lenders involved, the more complicated, lengthy and potentially costly the procedure becomes.
Get expert advice
Before investing in a short sale, in addition to hiring a real estate attorney, experts advise hiring a RealtorU+00AE who specializes in foreclosure properties. He or she can smooth your way through the process and protect your interests. If the first short sale deal doesn’t succeed, “try, try again.”

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