Although the steps involved in a short sale process are very similar to a traditional deal, the process is more complicated because of the lender's involvement. The typical home buying process merely requires the seller to transfer their equity to the buyer in exchange for the agreed-upon purchasing price. However, in a short sale, the transaction is in the hands of the lender, so the process tends to be more time-consuming and convoluted. The following six steps illustrate the primary differences between a short sale and a traditional sale. As with any home purchase, the first step is getting approved. While it’s always beneficial for buyers to obtain an initial approval before making an offer, it’s even more important in a short sale, as the lender will want to ensure that the new buyer is actually capable of purchasing the short sale property.Step 1: Get Approved For Financing
Step 2: Get A Real Estate Agent And Find A Home
Finding any home can take time, but it’s more challenging when your heart is set on scoring a short sale. Instead of searching through all the listings available in your desired area, focus on preforeclosure property listings online. You can also search through public records by getting in touch with the local county court.
Identifying and navigating a short sale can be tricky, but an experienced real estate agent can help you. They can assist with and explain all aspects of the home buying process, including locating short sales.
Step 3: Do Your Research
Before you make an offer, you want to gain all the information you can about the property. You’ll want to begin by reviewing comparable sales in the area to find out the actual value of the home. Real estate agents are an excellent resource for determining home value because they have access to the multiple listing service (MLS), which provides information on the prices of homes currently on the market and recently sold.
Since short sales are transactions in which the seller owes more on the home than it’s worth, you’re going to want to find out exactly how much the seller owes the lender. Before you purchase a short sale, you must make sure that you know of every person or entity that has a claim to the property (these are called lienholders). So, you should also double-check that there are no other liens on the home. You can ask the seller, their agent or lender for this information. However, to be safe, you should also ask a title company to do a title search on the property.
Step 4: Make An Offer
When making an offer on the property, you must use your knowledge of local home values to consider what the lender will think of your offer. You might be looking at the short sale as a way to get a deal on the home, but keep in mind that the lender is still trying to recoup as much of the remaining mortgage balance as possible – and likely also has to meet investor guidelines to accept the offer. Your offer should be close to the market value of the home if you want it to be accepted.
When you’re looking at properties, beware of fraudulent activity. If the seller asks you to pay money under the table for the opportunity to apply for a short sale, refuse and report it.
Step 5: Have The Home Inspected
Short sale properties are sold “as is,” which means you won’t be able to negotiate a lower purchase price if there are problems with the property. However, you should still know the condition of the home you’re buying before you decide to close on it. While the seller is required to disclose any known defects, sometimes this type of information falls through the cracks.
Be sure to get a home inspection so you know what you’re getting yourself into. If repairs are needed, research the cost or get estimates, so you can find out if the home will make financial sense for you in the long run.
Step 6: Close On The Property
Even after the lender has accepted the short sale, you need to ensure that the lender and any other lienholders are willing to release the collateral. The more lienholders there are, the longer this process can take.
For the sale to close, the seller must also provide the following documentation:
- Hardship letter: A letter that explains the seller’s financial burdens and exactly why they can’t afford to make further mortgage payments.
- Proof of income and assets: The seller must provide at least 2 years’ worth of bank statements and tax documents. This information must prove that the seller has no funds available to pay off their remaining debt.
- List of liens: While some sellers may only be in debt as a result of their primary mortgage, others may have multiple debts. The seller must provide an up-to-date list of all liens on the property.
- Comparative market analysis: A lender will insist upon a comparative market analysis to see a list of comparable properties that are currently on the market and have sold in the last 6 months to prove that the seller owes more than the house is worth.
Assuming the approval letter and documentation are in order, you’ll be able to close on the property, receive the keys and move in.
