Buying a Foreclosed or a Short Sale Home
What is a Short Sale Home
Short sales and foreclosed homes have become one of the common sales in many areas. A short sale occurs when the owner of the home can no longer make the payments. The lender agrees to accept less than the amount that is owed for the home. This is not always agreeable to lenders when the amount owed is much more than the house will bring in the marketplace. Some lenders would rather do a short sale than foreclose, due to the expenses involved with foreclosure. Foreclosures can involve high legal and other fees for the bank.
The sales must be agreed upon by both the bank and the homeowner. The homeowner will usually still need to pay the bank the difference in what is still owed and what the house is sold for.
There are many foreclosed and short sale homes on the market, much to the dismay of current homeowners. The homes are driving the price down of all real estate, but they may present a real bargain to new buyers looking for a deal. If you've been thinking about buying a foreclosed home, read on.
Purchasing a foreclosure or short sale home requires some caution on the part of buyers. The main advantage of course is the savings buying one represents, but in some cases the house isn’t the deal it appears to be. Be careful to take the precautions needed.
Both of these type of homes are also referred to as distressed properties. They occur when the buyer of the home can no longer pay the mortgage.
What is a Foreclosure
Foreclosure is a legal proceeding taken by a bank or other lien holder when the lender does not make the payments on the mortgage for the home. When the homeowner defaults on the loan, the lien holder can get the right to gain possession of the property from courts of equity.
Sometimes a bank can also require the borrower to pay back any amount that is still owed at the time the bank sells the home to someone new. This all depends on how the original mortgage has been written.
How to Find Short Sales and Foreclosures
The internet is a good place to search. Don't pay the websites that charge a monthly fee. If a bank wants to sell a home, they are going to usually list it with a real estate company. Why would they make you pay to find it? They want to sell the property and they want everyone to be able to see the listing.
Some sites on the internet will list prices and addresses. When you search for the address, it doesn't exist. They want to charge for a list of these houses. Don't be fooled.
Be Cautious - Disadvantages
Before making any offers on the property, you need to be careful that there are no problems with the title to the home or land. When the home has been foreclosed on, these problems haven’t always been dealt with. Your real estate agent should be of help to you in checking that there are no liens on the home and no easement problems.
Be sure to have the property inspected by a licensed inspector. Almost always a bank will sell the home as is and they mean it when they say this. You can not go back on them on anything. Having an inspection can give you some protection. When we purchased our home, the inspector guaranteed everything he inspected for one year. Not all inspectors do this.
Price is the main advantage of buying a foreclosed home, but most have repairs that need to be done. It usually involves cosmetics like painting and flooring, but sometimes they can involve mechanical issues in the home. It is good to remember that the previous homeowner didn’t have the money to pay the mortgage payments and thereby didn’t have the money to pay for repairs. Many homes are in poor condition due to undue wear and some are even purposely damaged due to the emotions of the owner when they had to give up the home. Be sure that furnaces, hot water conditioners etc are inspected. Roofs are also often a problem and make sure that it has a dry basement.
If the home has been up for sale through the winter, be sure it was winterized. Broken pipes can present a real expense. Plumbing isn’t cheap.
The home may not be such a bargain if it needs a new furnace, the central air doesn’t work or the roof needs to be replaced. Get estimates and add these into the cost when deciding if you want to buy the home.
Short Sales and Foreclosures may take much longer to close than other homes. You may even have a long waiting period just to see if they accept the bid. On short sales, the homeowner must also approve the bid which can take awhile as they wait hoping for a higher bid. This may take months.
If you already own a home, most sellers won’t allow you to make a bid on the home with the stipulation that you sell your property first. In the current market, this can be a problem if you can’t sell your current home in a short time. Be sure to check the current market price for your home. In recent years, the price of houses have diminished and you may be disappointed by it’s current value. Don’t forget the realtor’s fees.
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Advantages of Buying
The main advantage of purchasing a foreclosed or short sale home is the price. If you are capable of doing some of the repairs yourself, you can have a home of higher value than you could normally purchase. Some of these homes sell for as much as 40% lower than they would have just a few years ago.
Now is a good time to buy a home if you are a first time home buyer, but always proceed with caution. Be sure to have a home inspection and having a home engineer come in for a complete analysis of the home isn't a bad idea either. Check to make sure the title is free and clear.
If everything checks out on the home, you may find yourself a bargain. Don't get disappointed if the home has already sold. Real bargains can sell fast. Just keep looking.