If you are hoping to save money on your home purchase and you are considering a foreclosure or short sale, be prepared with all the facts. Yes, these properties are often cheaper than market averages, (average 11% for short sales and 16% on foreclosures), these discounts bring several unique problems and considerations. If the home is worth the additional work, then a foreclosure or short sale may be the answer for you.
A short sale occurs when the home value is far less than the amount due on the homeowners mortgage loan. The owner will work with the lender to enter into an arrangement to take less than the amount owed. Short sales offer savings but at the premium of time. These purchases are time-consuming and fraught with regulations. A foreclosure occurs when a homeowner cannot afford to pay or refuses to pay remaining amount of their mortgage loan. The lender begins the legal process of foreclosure and removes the home from the possession of the owners to attempt to sell it themselves. Foreclosures offer great savings to would-be homebuyers but at the expense of the money you save, as these homes require significant repairs.
If you aren’t sure which one best fits your situation, then you will need to research the market and make sure that the amount that you would save on either purchase would offset the cost of repairs and additional paperwork and time. If you are in a rush to find a home, neither of these processes will serve your interest.
The short sale is the better choice for homebuyers not in a hurry to move. It is the most affordable option, as these homes should not be in poor condition. The owners usually still live in these homes and are still maintaining as opposed to foreclosures. The reason short sales take longer is that there is a third party in the proceedings. The bank can decline a sale, and other liens against the property also have to be taken into consideration. This process can be expedited by searching listed bank approved short sales. Foreclosures do not usually take as long as short sales, but they do usually require more time than a traditional home purchase. These home sales move faster than short sales; however, they do have the additional issue of damage to the home. Another way to hasten the process is by choosing a home that is vacant. The bank, once they have set a price, is eager to move the home and favors cash buyers.
The key to purchasing a distressed property is to use a third party that understands the process and can help eliminate obstacles. You will need someone that has been educated on how to handle this very specific form of business and help you meander the landscape unscathed.