Buying Short-Sale Homes And Foreclosures For Home Buyers

Gustan Cho Associates

This BLOG On Buying Short-Sale Homes And Foreclosures For Home Buyers Was PUBLISHED On March 6th, 2019

Buying Short-Sale Homes And Foreclosures For Home Buyers

Buying Short-Sale Homes is very different than buying homes by sellers.

  • Purchasing short-sale homes are more complicated than traditional home purchase transactions
  • When buying short-sale homes, buyers are really dealing with lenders
  • Homeowners have very little power
  • A home seller may entertain a real estate purchase offer when buying short-sale homes
  • The ultimate decision is the lender that holds the mortgage on the subject property
  • The mortgage process is different when buying short-sale homes

This includes negotiations to getting an accepted offer, to the mortgage process, purchasing short-sale homes are just much more difficult to deal with.

What Is A Short-Sale Home

What Is A Short-Sale Home

Many buyers think they are getting major deals when buying short-sale homes. This is not the case.

  • A short-sale home is when a homeowner has a mortgage balance higher than the market value of their home
  • Homeowners with underwater mortgages cannot sell their home unless they are willing to cover the shortage
  • The homeowner no longer can afford their mortgage payments due to extenuating circumstances such as a loss of employment, death, medical reasons, or other reasons
  • The lender often will offer homeowners who can no longer afford their mortgage payments a short-sale
  • What this means is that the lender will let the homeowner sell their home at a price lower than what they owe on their mortgage balance

Many lenders will offer homeowners short-sales versus going through the foreclosure process. In return for a short-sale, lenders will not proceed in going after the homeowner for the loss. 

Is Buying Short-Sale Homes A Bargain?

Is Buying Short-Sale Homes A Bargain?

Many home buyers think that purchasing short-sale homes is a major bargain. This is not the case.

  • Lenders normally price the short-sale home according to what the housing market holds
  • In general, lenders price short-sale homes 5% to 25% below market for a faster sale
  • Many homeowners who purchased homes prior to the 2008 Great Recession often purchased homes at an inflated price
  • Now those folks needing to sell their homes need to sell them at a price under what their mortgage balance is

Buying short-sale homes do come with much more headache and stress for buyers. Be prepared for a long stressful home buying process when buying short-sale homes.

Reason Why Buying Short-Sale Homes Is More Stressful And Time Consuming

Reason Why Buying Short-Sale Homes Is More Stressful And Time Consuming

Buying short-sale homes are different than buying foreclosed homes because lenders do not have full possession of the property.

  • Therefore, the homeowner needs to quarterback the sale of the home
  • Homeowner sets the price and needs to get lender approval
  • Lenders always lose money on short-sales
  • This is why lenders need to approve terms of the short-sale and has the final say
  • It takes time for homeowners to get approved for them to do short-sale
  • Homeowners need to apply and qualify
  • They need to complete a formal application and their lender will need financial docs
  • Once approved, sellers can choose their real estate agent of choice
  • A solid offer by a buyer will need final approval by the lender
  • Lenders often sit on a purchase offer for many days or weeks before approving it

Buying-short sale homes take much longer to close than traditional home sales.

Negatives With Buying Short-Sale Homes

Negatives With Buying Short-Sale Homes

Home buyers who need to close on a home quickly, buying short-sale homes is not recommended.

  • Buying short-sale homes take substantially longer
  • It can take anywhere between two to six months or home to close a short-sale home
  • There are often many hangups with banks
  • There are many instances where home buyers get fed up and cancel the transaction
  • It is next to impossible to get sellers concessions when buying short-sale homes
  • This means home buyers need to come up with closing costs unless they can get a lender credit
  • Fees and costs may be higher when buying short-sales

Some buyers are often required to pay delinquent taxes and/or delinquent homeowners association fees.

Short Sale Homes Versus Foreclosures

Buying Short Sale Homes Versus Foreclosures

Buying foreclosed homes is much easier than buying short-sale homes. However, short-sale homes are in much better condition than foreclosed homes. The seller normally still lives in the home and is maintaining the home on short-sale homes. Many homeowners want their homes sold via short-sale so they do not have a foreclosure on their record. Due to this reason, short-sale homes are properly maintained and are often in good condition. Foreclosures are homes that the lender has gone through the foreclosure process. Many homeowners were often evicted and thrown out by the county sheriff. There are cases where homeowners stripped the whole interior on a foreclosed home. Make sure that you get a full home inspection when buying a foreclosure. There are instances where evicted homeowners poured cement in the toilets and stripped copper pipes.

Can Foreclosures Be Financed?

Foreclosed homes that cannot be financed due to not being habitable, homebuyers can purchase foreclosed homes with FHA 203k Renovation Loans. FHA 203k Loans allow home buyers to purchase fixer-uppers with 3.5% after renovation value. Gustan Cho Associates offers FHA 203k Loans with no lender overlays with credit scores as low as 580 FICO. To qualify for a mortgage with a direct lender with no overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at We also offer nonQM loans and bank statement loans for self-employed borrowers. Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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