Buying Short Sale Home Purchase Versus Traditional Home

Gustan Cho Associates
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This BLOG On Buying Short Sale Home Purchase Versus Traditional Home Was UPDATED On May 19th, 2019

A short sale is when a homeowner has a home with a loan balance that is higher than the value of their home and gets their lender to agree for them to sell their home at a discounted price. The discounted prices that are lower than their mortgage balance is a short sale transaction.

  • Short sales have been around for a long time
  • It did not skyrocket until after the real estate and credit disaster of 2008
  • The Great Recession of 2008 devastated the real estate market nationally
  • Every county in America was impacted by the collapse of real estate values
  • There were areas of the United States where real estate values dropped by more than 50%
  • Many parts of Illinois, Florida, California, Washington, Texas, Georgia, Michigan, Arizona, Maryland, Iowa, Ohio, Louisiana, Indiana, and Wisconsin were greatly affected where bankruptcy and foreclosure rates have reached historical highs
  • Millions of small businesses closed their doors or downsized where they had to lay off millions of tenured workers
  • Many veteran hardworking Americans were let go from the jobs they have held for years, if not decades
  • They could not find comparable jobs
  • Had to settle with jobs that they were overqualified
  • Settled for making a fraction of what they used to make
  • Others remain unemployed even after the Great Recession of 2008
  • Have totally given up looking for jobs and are barely making ends meet by living with family or working temporary jobs for minimum wage
  • Yet others went back to school to learn a new trade
  • After graduation, they cannot find employment
  • This was because the employers are looking for younger graduates where they can pay apprenticeship wages
  • I know dozens of friends who went back to college after the Great Recession of 2008
  • This was because they lost their jobs
  • Many were in their 40’s and 50’s and graduated in the top of their class
  • However, after graduation, they could not find employment
  • This was because the employer hired younger college graduates with lower grade point averages because of their age
  • Age discrimination does exist, folks
Buying Short Sale Home Purchase
Gustan Cho Associates Mortgage Group

Impact On Great Recession And Real Estate Meltdown Of 2008

It is common sense that if a family household income drastically gets reduced, often times they cannot afford the mortgage payment.

  • Most homeowner’s mortgage payments are about half of their monthly gross income
  • So if monthly income gets reduced by 50%, making mortgage payment will be next to impossible
  • Many homeowners who lost most or all of their equity in their homes
  • Many had upside down mortgages contacted their lenders to see if there was an alternative to foreclosure
  • One of the alternatives to foreclosure is a short sale
  • A short sale is where the lender will agree for the homeowner to sell their home at a price that is lower than the loan amount owed
  • Hundreds of thousands of homeowners opted the short sale route to avoid a regular foreclosure
  • Many homeowners believed that going through a short sale was better for their credit than going through a foreclosure
  • Unfortunately, that is not correct
  • The Fair Isaac Corporation (FICO) views a short sale the same as a foreclosure when calculating consumer FICO credit scores
  • Most lenders will approve a short sale with no questions asked
  • This because a lender will save time and money opting for a short sale than the time and money it takes to foreclose on a home
  • Short sale homes normally sell much more than a foreclosed home for the mortgage lender who owns the property
  • Homes that are being short sale are generally in good shape
  • This because the homeowner still lives and cares for the home until the date it is sold
  • Foreclosed homes can be vandalized, stripped of kitchen cabinets, fixtures, plumbing, etc
  • The homeowner gets to choose the listing real estate agent for a home that is under short sale

Buying Short Sale Home Purchase

Once the lender agreed to a short sale request, the next step to take is to hire a real estate listing agent:

  • Short sales are different than traditional real estate sales
  • The real estate agent should have knowledge and experience with short sales
  • Realtors should have extensive experience on how to deal with lenders who own the short sale property
  • Homeowners and/or home buyers will not want a rookie real estate agent who had never had experience with short sales representing them
  • The real estate agent should have had at least a half a dozen short sale transactional closings
  • They should understand the difficulty of working with the sellers and the lender.
Gustan Cho Associates

Hiring Real Estate Agent On Buying Short Sale Home Purchase

I buying short sale home purchase, buyers need to hire a real estate agent who is experienced with buying short sale home purchase:

  • Short sales are different than regular purchases
  • This because just because a home seller agrees to sell their home, the seller will need their lender’s approval in order for the real estate purchase contract to be acceptable and approved
  • Plus, when buying short sale home purchase, buyers and sellers need to realize that it may take weeks for a short sale mortgage lender to get back to with the decision
  • It may take months sometimes to get an acceptance
  • Many mortgage lenders are very slow and not too accommodating
  • Make sure to choose a lender who is experienced in dealing with short sale purchase loans
  • Get yourself pre-approved as soon as possible
  • Once the lender approves the short sale, the rest of the process towards closing normally moves rather quickly
  • Make sure lender is on top of processing and underwriting mortgage once short sale is approved
  • This because many short sale sellers do not extend extensions
  • Many lenders who are sellers have no problem canceling a short sale purchase contract if the buyer cannot meet the closing date
  • If a lender issues conditional approval, do not procrastinate on getting lender the conditions
  • This is so borrowers can get a clear to close, CTC, as soon as humanly possible.

Is Buying Short Sale Home Purchase Bargains?

Many home buyers gravitate towards short sale homes and foreclosures. This because they assume short sale homes and foreclosures are bargains.  That is absolutely not true.  Yes, buyers can get a great bargain on short sale homes and foreclosure but that is not always the case.  Before a short sale seller/lender approves a listing price, they do their own due diligence and will consult with professional realtors and appraisers as to the market value of the subject property. Lenders will not give properties away and will list it on the market property.  Buyers may get below market price if the short sale home has been listed on the market for quite a length of time.  Do not expect to get a major bargain on a short sale property if the home is freshly listed on the market.  Sellers of short sale homes will most likely not repair the home as a contingency of the real estate purchase contract and will be selling the property as is.  Don’t expect that the home seller will replace carpeting or repaint the home.  Most likely buying short sale home purchase will be purchasing the home as is condition.

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