Kim Blanton

How to Buy a Short Sale Property

Short Sale Properties are usually sold just below fair market value and many times are in very good condition

These properties are usually “still lived in” and the homeowner is trying to avoid foreclosure by exercising the option of selling their home  using  a mortgage loan short sale. The homeowner still has ownership of the home and it is not a bank owned property.  The mortgage lender may agree to a sale of the home and short the loan balance by accepting less than what is owed as long as it does not dip below the pre-established limit. It is imperative to have both your buyers agent and the listing agent be qualified and certified in the short sale process.  Either one of these agents not having the proper knowledge can mean the difference of having a successful closing.

I thought I could get a great deal…

You can get a deal, just not a steal.  Short Sale properties are usually sold below fair market value.  There are parameters however, and it will depend on the type of loan the seller has, such as FHA, VA or Conventional.  Lenders can usually not accept anything less than 85-88% of fair market value plus seller expenses.  To make this a little easier, this means that the net amount that you can expect to get a short sale for would be approximately 92-95% of the fair market value.  The amount that the seller owes their lender is not factored into this process.  It is all based on fair market value.

Will the Lender Consider My Offer?

In order to have a successful contract, and one that will be accepted fairly quickly, the offer must be within the guidelines stated above.  The homeowners and their agent will contact your agent with a counter offer if they feel that your offer is below the threshold that would normally be accepted.  The home still belongs to the homeowner, not the lender, so the homeowner will do all the negotiating, just as they would in a normal sale.   This is not a foreclosure where the bank owns the property and does the negotiating.

I Have Heard That it Can Take Months to Get an Answer

Again, this will depend on what type of loan the homeowner has.  If they have an FHA loan, then they actually have to be approved by HUD(Housing and Urban Development) to enter the pre-foreclosure program. This approval process should have taken place before the property was placed into the MLS (Multiple Listing System), which should work in your favor.  If it is VA or Conventional, and all of the homeowner documents were properly submitted and reviewed, then there should be very little delay.  Most delays come from inexperienced listing agents and unknowing homeowners who submit incomplete or incorrect documents at the beginning of the pre-foreclosure process. It is wise to have a Realtor® who has been specifically trained in this field.

Can I Get Any Repairs Done?

The only way to have repairs done is if the property is un-insurable and the buyer can’t get a loan.  I.E. there is a structural problem or a very badly leaking roof.  In this case, the seller’s lender may agree to have you “gross up” the sales price to include the price of repairs, but it will have to be on the closing statement and be paid directly to the contractor.

Will My Closing Costs Be Paid?

Generally, in a short sale, lenders do not want to cover any of the buyers closing costs.  This will again, depend on what type of loan the homeowner has and what type of loan the buyer is bringing.
If the homeowner has an FHA loan and the buyer is bringing an FHA loan, then the maximum allowable buyers closing costs can not exceed 1% of the contract price. If the buyer has a non-FHA loan, then no closing costs will be allowed.
If the homeowner has a VA or Conventional loan and regardless of the type of loan the buyer has, the maximum amount that will be considered is 3% of the contract price and the contract must not be lower than fair market value.

I Need More Closing Cost Assistance!

The truth is, lenders have certain parameters that they must follow and can not deviate in a Mortgage Loan Short Sale.  If you are not able to abide by the above closing cost assistance, you may need to re-consider your desire to purchase a short sale.  You should discuss this with your Realtor® prior to making an offer on a Short Sale Property.

What about a Home Warranty?

If the sellers loan is an FHA loan, typically, FHA will not allow an expense by the seller to cover a home warranty. If the homeowners loan is VA or Conventional,  the maximum 3% buyers closing cost mentioned above would apply

What about HOA Transfer Fees and Dues?

If the sellers loan is an FHA loan, typically FHA will not allow an expense relating to a  Homeowners Association.   If the homeowners loan is VA or Conventional,  the maximum 3% buyers closing cost mentioned above would apply

What is an Acceptable Offer?

A good rule of thumb is to give earnst money of at least $1000.00  You should also include a Pre-Approval letter, (not pre-qualified) to prove you are a qualified buyer.    The best offers are those that don’t ask for anything additional.

How Long Before I Can Close?

In negotiating your offer, you should put your closing date out at least 120 days to give the lender plenty of time to approve the short sale and the buyer plenty of time to arrange and secure financing.  Typically, once the short sale is approved, the lender will require a closing not to exceed 30 days after the approval.

The information on this site should not be construed as legal advice. The content herein is considered to be general advice and you should consult with a qualified  attorney and tax advisor before acting.

For more information on buying and selling homes in the northern Middle Tennessee area including Goodlettsville,  Hendersonville, White House and Springfield

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