In a short sale deal, the Seller owes more on the mortgage than the house is worth in the current market. Sometimes the purchase offer made is as much as $200,000 or more less than the amount of the mortgage owed to the bank!
We get calls pretty often from people who are looking to purchase a home. Many of these are short sale deals.
You can find some outstanding bargains in short sales but there are some caveats
First is the amount of time needed to close on the sale of the home itself. We insist upon a provision giving you an escape if the approval takes more than 120 days from time of execution of the contracts of sale. That being said, it can take six months or longer to close that transaction due to the problems with Seller’s banks. A non short sale transaction may close in 45 to 60 days. Because of the length of time between contract and closing the buyer may have to pay their mortgage company money to extend their mortgage commitment. That mortgage rate may be subject to fluctuations in the interest rate if they have not paid money to lock in their rate.
I am not privy to the workings of the Fed insofar as interest rates, however I believe it is fair to state that interest rates will be going up in the future. This means if you don’t lock a rate in your monthly payment will increase. I do not recommend adjustable rate mortgages at this time for this reason.
Another caveat is the Seller’s bank must approve the purchase offer as well as the HUD. The HUD is a form usually completed at time of closing that lists closing costs such as bank points, mortgage underwriting costs recording costs, title costs etc. In the case of short sale the seller bank must know these amounts as well as the fee for the Broker and the Seller’s attorney fee so that it can pay these fees and recoup the approved amount of net proceeds in satisfaction of their loan. The HUD must be pre-approved before the short sale is accepted in writing by the bank.
Another caveat is the repairs issue. I recommend that every buyer obtain a home inspection and termite inspection. Repairs and issues raised will almost never be paid by the Seller as part of the reason for the sale is the Seller is over his or her head. Therefore you as the prospective purchaser will need to budget for these items unless your Broker can work out a deal by shaving some of their commission or actually getting a Seller to make a certain repair ASAP. But there are mortgage programs which allow you to borrow more than the cost of the house to make these repairs. We closed one such loan last week at 3.75% and the purchaser has almost $17,000.00 available to make repairs and improvements
Feel free to call or email me if you have any questions using the link on my website or firstname.lastname@example.org