Buying a home is no easy task. It takes a lot of work to find a home that suits your needs and preferences let alone your budget. Going with a foreclosure or short sale property can be a great way to save money on a wonderful home, but it’s important to know the difference between the
two aswell as the challenges you may be faced with.
A property is in foreclosure when the owner fails to make mortgage payments over a period of time and the lender takes ownership of the home. A home in foreclosure may be sold at an auction or sold by a Realtor. When dealing with a foreclosure, the bank is the seller, not the homeowner.
Don’t let the term “short-sale” throw you, the process can be much longer than a typical home sale. A short sale property is still owned by the homeowner, the borrower. Typically, the homeowner will make arrangements with the bank, the lender, to accept a price that is less than what is still owed on the property. In a short sale, the lender usually agrees to forgive the rest of the loan. The key here is to remember that the buyer, the seller, and all of the lenders involved need to agree on the sale price before a sale is finalized. Keep in mind that if there are multiple mortgages out, then all lenders are lien holders.
Things to consider:
Before making any decisions, learn the ins and outs of each process. You can find a ton of information online about foreclosures and short sales. It’s also a good idea to ask questions. Talk to Realtors, talk to friends who have gone through one or the other, seek out seminars, etc.
Do not attempt to handle this on your own. Invest in the help from a professional. Laws regarding these types of things vary from state to state so an experienced agent with established relationships with lenders will be a tremendous help.
Next, be very aware of what you may be dealing with in the future. For example, homes in foreclosure sold at an auction are often sold “as is” meaning that you may not even get the chance to enter the home before you are the new legal owner. There are no inspections or walk throughs and potential liens on the title.
Be patient. While purchasing a foreclosure or short sale property can save you money, the process is usually longer and more complicated than it would be otherwise. You’ll need to deal with waiting periods for a foreclosure and waiting for an agreement on price from all parties involved with a short sale.
Lastly, don’t forget the additional expenses you may encounter. While the base price will seem like a steal, you’ll have to remove any liens, pay any unpaid taxes, and of course pay for repairs that could have been covered by the previous owner if you were offered the chance of an inspection. By the time all of those costs are added, the deal may not seem as sweet.
Do not get me wrong, I am not saying that purchasing a foreclosure or short sale property is a mistake in any way. I just want you to be aware of all of the aspects and possible obstacles involved. Buying a home is a long term investment. It’s important to know exactly what you are doing and what is expected of you before you go through with anything.