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Mortgage News Matters

Process for Buyers Purchasing a Short Sale

Because a lender is much more involved in the purchase of a short sale, it is important to recognize that the process is not as simple as the typical home buying process between a seller and a buyer.

To help, we’ve broken it down into 6 unique steps that buyers must take when purchasing a short sale.

Step 1: Get approval for financing.

Like with a typical home purchase, the buyer must first get approved by the lender to take out a mortgage loan. This is especially important during the process of a short sale, as the lender will need to be sure that the new buyer is financially sound enough to make their mortgage payments – to avoid a future similar situation.

Step 2: Work with a real estate agent to find a home.

If you are committed to purchasing a short sale, it is important to find a real estate agent who can help you navigate the process. If you choose to find a home without the help of a real estate professional, you may want to focus your energy on looking at homes that are listed as ‘pre-foreclosure properties’ or searching through public records.

Step 3: Research, research, and research some more.

Before making an offer, it is vital to research said home and gain as much insight into the property’s history, as well as its current market value. Since, with a short sale, the seller owes more than the home’s actual value, you will want to find exactly how much the seller owes the lender.

You will also need to find out if there are any claims on the property by an outside person or entity, like a lien. The best way to be sure of this is to hire a title company to run a title search on the home.

This is another perk to hiring a real estate agent to help you, as they have exclusive access to important tools that can help you find this information.

Step 4: Make an offer.

Though many buyers look to short sales as a way to purchase a home for an especially good deal, it is important to keep in mind that the lender is still trying to make back the money on their initial investment. This is why it is important to get a realistic understanding of how much the home is worth before putting in an offer. You can do this by looking at what other homes in the area have sold or are currently priced at. Your offer will still have to be close to the market value if you want a chance that it is accepted.

Step 5: Get a home inspection.

Because of the nature of a short sale, they are sold “as-is.” This means buyers are not able to negotiate for a lower price if they discover problems with the property. Even with this, it is always a good idea to get a home inspection before purchasing a property, to get an understanding of any defects or issues with the home. If repairs are needed, this knowledge will help prepare the buyer.

Step 6: Close on the property.  

For a short sale to close the seller must provide documentation of the following:

  • Hardship letter, explaining that the seller is in financial distress and unable to make their mortgage payments
  • Proof of income and assets, which shows 2 years’ worth of bank statements and tax documents as proof that the seller is not financially equipped enough to pay back their debt.
  • Up-to-date list of liens, showing proof that there are no other individuals who can make a claim on the property.
  • Comparative market analysis, which shows the lender a list of comparable properties currently for sale and have sold within the last 6 months.

Though they are not necessarily an ideal situation for sellers to find themselves in, short sales can be beneficial to buyers and sellers alike.

To learn more about the process of purchasing a short sale, contact a VanDyk Loan Originator today!

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Mortgage News Matters

What are the Pros & Cons of Selling a Short Sale for Sellers

Though they are not necessarily an ideal situation for sellers to find themselves in, short sales can be beneficial to financially distressed sellers looking to avoid foreclosure.

What are the benefits of a short sale for sellers?

  • Seller can avoid foreclosure. A short sale is one of the last options that a seller has before going into foreclosure, which is more detrimental to their credit.

  • Save on common fees. Sellers can avoid paying common fees, like the cost of a realtor’s commission if they sell their home with a short sale.

  • Possible debt forgiveness for the seller. In certain cases, the lender will accept the money made from the short sale and forgive the seller’s remaining debt. It is important to note that, in some cases, a short sale will not eliminate a seller’s debt if the lender chooses to get a deficiency judgement against the seller for debt owed.

  • No barrier to re-enter the housing market. With a short sale, sellers are eligible to re-enter the housing market if they wish to purchase a new home with an FHA loan, in some circumstances.

What are the drawbacks of a short sale for sellers?

  • No negotiation power. When a seller decides to sell their home through a short sale, they are relinquishing any negotiation power they may have had because the sale is now in the lender’s hands.

  • Loss of profits. Because the seller still owes money to the lender in the case of a short sale, all the profits go to the lender.

  • Damage to credit score. Though the damage to the seller’s credit is much less damaging than in the case of a foreclosure, the seller will still experience a negative effect on their credit.

  • Delay in obtaining another mortgage. When a seller goes through a short sale, they are required to complete a waiting period anywhere from 2-7 years before they can qualify for a new mortgage.

  • Deficiency judgement. There are some instances when the lender will choose to sue the seller for the remaining money owed on the property in what is called a ‘deficiency judgement.’ If the lender chooses to do this, the seller will experience a hit on their credit, like that of a foreclosure.

Are you looking to sell your home through a short sale? To learn more, contact a VanDyk Loan Originator today!

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Mortgage News Matters

What is the Difference Between a Short Sale & a Foreclosure

Short sale vs. Foreclosure: What’s the Difference?

Though both short sales and foreclosures provide financial relief to homeowners who are unable to make their mortgage payments, they are two entirely different processes that result in significantly different consequences for the homeowner.

Initiated by the lender, rather than the borrower, a foreclosure is the lender’s last option, in the case that a borrower can no longer make their mortgage payments. In a foreclosure, the lender seizes the borrower’s home to try and make back the money they’ve invested. Most often, foreclosures take place after the homeowner has already abandoned the home, but if the homeowners have not left, they are evicted.

When a foreclosure takes place, it is typically a much quicker process than going through a short sale as the lender will try and liquidate it as quickly as possible.

Foreclosures are kept on a borrower’s credit report for seven years and can prevent the borrower from purchasing a home for 2-7 years after the home is seized by the lender.

A short sale, which is typically a much longer process, is less damaging to a borrower’s credit. And, in some cases, allows the borrower to purchase another home immediately.

To learn more about the difference between a short sale and a foreclosure, contact me today!

Categories
Mortgage News Matters

What is a Short Sale?

A short sale is when a financially distressed homeowner sells their home for less than the amount that they owe on the mortgage. In this case, all the proceeds from the sale go directly to the lender, and they either (1) forgive the remaining balance or (2) get a deficiency judgment, which requires the homeowner to pay the lender all or part of the difference between the sale price and mortgage amount. In certain states, the difference must legally be forgiven in the case of a short sale.

Key points of a Short Sale

  • A lender must approve a short sale before it takes place.
  • The lender, or bank, requires documentation explaining reasons for the short sale.
  • Short sales typically take up to one full year to process due to a laborious paperwork process.
  • Are not as detrimental to a homeowner’s credit rating, as a foreclosure.

When does a home go into a short sale?

A property will go into a short sale (pending the lender’s approval) when the homeowner can no longer afford to make the mortgage payments. Rather than go into foreclosure, which is more damaging to one’s credit, the homeowner can initiate a short sale process by submitting an application to the lender.

When determining whether to approve a short sale, the lender will look at the following factors:

  1. The home must be worth less than the amount that the homeowner currently owes on it. The lender will often review sales of comparable properties, to make sure that the decision is sound.

  2. The seller must be able to prove they are financially distressed. This requires the seller to show the lender proof of insufficient income or assets to pay the outstanding loan amount.

    It is important to note that the source of the homeowner’s financial trouble must be new and not something they were previously withholding.

To learn more about short sales, contact a VanDyk Loan Originator today!