Buying Foreclosure Versus Short Sale Home With FHA Loans

This BLOG On Buying Foreclosure Versus Short Sale Home With FHA Loans Was UPDATED On December 13th, 2017

Many home buyers look into Buying Foreclosure Versus Short Sale Home With FHA Loans because they feel they can get a bargain.
  • Home buyers can purchase foreclosed homes and short sale homes with FHA, VA, USDA, and Conventional Loans
  • Many home buyers believe that they cannot purchase foreclosed and short sale homes with FHA Loans
  • This is not the case
  • All government and conventional loan programs require that a home needs to be habitable
  • Days where FHA home appraisals are tougher than Conventional appraisals are long gone
  • Conventional appraisals have toughened up and FHA appraisals has become more lenient
  • There are really not too much different between FHA Appraisals Versus Conventional Appraisals today

Are There Benefits In Buying Foreclosure Versus Short Sale Home?

Many home buyers are under the belief that they can get deals in buying foreclosures and/or short sale homes. This is not normally the case. Banks are not in a hurry to sell foreclosed homes and take their sweet time in getting back to short sale home buyers.

  • Many home buyers automatically assume foreclosed homes and short sale homes are bargaisn
  • First time home buyers often wonder the advantages of buying foreclosure versus short sale home
  • There are both advantages and disadvantages on buying foreclosure versus short sale home
  • A home being foreclosed on is normally the last resort that is left to a homeowner when they default on their mortgage payments and can no longer afford it or come to terms with his current lender to get a payment agreement established
  • The mortgage lenders normally starts foreclosure proceedings after the mortgage loan borrower defaults on his or her mortgage and after 90 days
  • The foreclosure process can start after 90 days unless there is an arrangement made with the lender
  • The mortgage lender can offer the homeowner a deed in lieu of foreclosure or short sale to the homeowner in lieu of foreclosure

What Are Short Sales?

Short sales often happen when the subject property is sold at a price below the amount of the mortgage loan amount held by the bank or mortgage lender.
  • Many short sale homes can often be purchased below market value but many times, the homes may need tons of work and the home buyer should take this into consideration

Benefits Of A Foreclosure Versus A Short Sale; Short Sale Homes

The real estate and banking collapse of 2008 has devastated millions of home owners throughout the country where housing values have plummetted and wiped out equity of homeowners.

  • Millions of hard working Americans who have lost their jobs could no long afford their monthly mortgage payments and were forced to list their homes so they can downsize or take the hard earned equities they have build
  • Unfortunately, the majority of the homeowners found out that the mortgage balance of their homes were higher than the value of their homes and were forced to contact their banks or mortgage lender and offer them the keys in lieu of a foreclosure and/or short sale
  • Many did not know what the advantages and disadvantages of a foreclosure versus a short sale

How Do Short Sales Work?

Prior for a homeowner to be able to enter into a short sale agreement, the homeowner needs to get permission from the bank or mortgage lender on what agreed price the homeowner can list the property below the homeowners current mortgage balance.
  • The main goal for the lender is to try to get as close to a price to the mortgage balance as possible so the mortgage lender minimizes its losses
  • In a short sale, all efforts are made to sell the property for less than the mortgage amount owed
  • Not every mortgage lending institutions will agree to a short sales sales contract
  • Most of them will just proceed to foreclose on the property. institutions agree to short sales as they lose out on the total sale price
  • If there is an offer on a short sale property, the offer is turned in to the mortgage lender who is the lien holder and the mortgage lender can come back with a counter offer or take the offer
  • Once the price is mutually agreed upon, the sale can go through

Hiring A Real Estate Agent

Home Buyers who are intending on purchasing a short sale home, I strongly recommend that you choose a real estate agent who has experience with short sales.
  • The experienced realtor will know about the short sale process and the barriers you can experience with buying short sales
  • The realtor will guide you the right way on the type of offer you should make and what other buyers you are competing with
  • The realtor will refer you with an experienced mortgage company or loan officer who can give you a fast pre-approval who meets your credit and financial situation
  • The majority of short sale homes are sold as is and the seller will not make any repairs if you are going through a FHA insured mortgage loan and the home is not safe and not secure

Advantages And Disadvantages Of Buying A Foreclosure Versus A Short Sale

On most cases, the buying process of a short sale home is takes normally longer than a foreclosure home.

  • Banks or mortgage lenders owns the the home on foreclosed home and has the liabilities of all existing liens that is attached to the subject property
  • Bearing this fact, the buying process is shortened because the bank or mortgage lender has full control of the property and in most cases, the home is vacant
  • Prices for foreclosed homes may be lower than short sale homes because mortgage lenders do not want to hold vacant property in its inventory
  • Lenders do not want the liability of vandalism or having squatters occupy the place as well as keeping up with the maintenance of the property
  • The longer a foreclosed home sits on the market, the better price advantage and negotiation power home buyers will have
  • The bad thing about foreclosed homes is that most foreclosed homes are in worse condition than short sale homes
  • With short sale homes, the homeowner can be still occupying the home and taking care of the home
  • Many times, foreclosed homes have had fixtures and appliances taken out of the home or replaced with inferior items
  • Keep in mind that most short sale homes and foreclosed homes are sold on an “AS IS” basis
  • Home Buyers could run into problems during the appraisal process
  • Sellers normally correct items that the appraiser requires fixed
  • But many banks or mortgage lenders who are the owners of short sale homes or foreclosed homes may be reluctant in repairing items when the appraisal requires it
  • Some banks or mortgage lenders will give the buyers entry to the property to make the repairs but will not pay for it

Disadvantages Of Buying Foreclosure Versus Short Sale Home

Not all foreclosures or short sale homes are bargains.

  • Many times market prices for foreclosure and short sale homes are at market or above market prices
  • That is why I strongly recommend that home buyers choose an experienced realtor who knows the area and the comparable sales
  • Another disadvantage in Buying Foreclosure Versus Short Sale Home is that they normally take a lot longer to close than privately listed homes
  • There are cases where foreclosed homes and short sale homes take up to six months to close due to the slowness of the mortgage lender or bank to get back with conditions such as title, lien releases, etc.

Home Buyers who are interested in buying foreclosures and/or short sales and need a direct mortgage lender with no overlays, please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at We are available 7 days a week, evenings, weekends, and holidays. All of our pre-approvals are full credit approvals signed off by our mortgage underwriters.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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