Buying a short sale or foreclosure can be appealing when you look at price tags, but beware of pitfalls. A “distressed” property purchase can get really complicated, really fast, and you don’t want to end up mired in a slow-to-close situation.
The Skinny On Short Sales
A short sale means that you are buying a home from the homeowner, for less than they owe on the mortgage already in place. However, the homeowner must have received permission from their own lender to sell for under the loan balance, and you’ll be dealing directly with that lender plus your own lender throughout the process.
In many cases, a short sale home will be either recently vacated or still occupied. This usually means it will be in fairly decent shape, cosmetically, and utilities will still be on, meaning you can do a thorough walkthrough.
The biggest drawback when it comes to short sales is that the time to close can be extensive. This can cause issues with your lender. Another potential complication is a second lienholder on the home, which can cause even more complications as you try to navigate the purchase.
The Facts About Foreclosures
A foreclosure means you are buying a home that the bank has seized. Banks aren’t in the business of buying and selling homes, and they want to get the real estate off their hands as quickly as possible as they lose money holding and maintaining properties. This means they are usually willing to sell the home for much less than it is worth!
Foreclosed homes have usually seen the former owners evicted. This can mean that you’ll find signs of disuse, pests, varmints, or even squatters or vandalism. Break ins may have been conducted to strip out valuable metals, like copper piping or to steal appliances. A foreclosed home may end up being a fixer upper so yu’ll need to consider your available cash on hand.
Special loan programs through the FHA or Fannie Mae, both of which support programs to buy foreclosed homes. The other option is to buy such a hoe through auction, which require either enough cash on the barrel to win the bid or a hard money loan which can mean exorbitant interest rates and a massive down payment.
If you do decide to look into a short sale or as well-maintained foreclosed home, make sure you have a real estate agent who is familiar with these types of home purchases, and a lender who will work with you to preapprove you for this kind of property.
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