Simply put, a short sale refers to a home that is up for sale at a price lower than the current amount left on the mortgage.
There are times when one person's hardship means opportunity for someone else. It may not be pleasant, but sellers in a financial bind may be prone to even selling their home for a price below what they still owe on it. As a buyer, this offers the attractive prospect of getting a new home
at a significantly lower price. However, the bargain often comes at the price of added hassle. Here's how you can save money on a short sale, with a little help from car insurance
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What is a short sale?
A short sale is a home that has been placed up for sale at a price that is lower than what the home's current owner owes via the mortgage
. As you might expect, it's never the desired outcome for any homeowner. Most of the time, it's a result of the seller trying to beat an impending foreclosure — which would inadvertently cost the owner more than selling at a loss. In some instances, the owner has already defaulted on the loan they made for the home. That leaves them with few choices other than putting the house on the market. The lending bank will attempt to mitigate its loss however possible.
Why should I buy a short sale home?
For a prospective home buyer, this can be an opportunity. There is usually a significant discount off of the home's original value
. The bottom line is rarely so simple however; short sales are never the result of a tidy situation, and you can expect more stressful hurdles than a typical sale. Some buyers find themselves bogged down by shady dealings from the selling party, and may even find their "short sale discount" negated by hidden fees and costs.
With that said, the question remains: is a short sale listing worth it? It depends. You can expect to fight for the home, so it’s important the house matters enough to you.
Buying a house is stressful enough at the best of times, and the added strain of a short sale may be more than you’re willing to handle with for the money saved.
How to buy a short sale home
Short sales aren't easy. But if you go through the correct steps, you could have your dream home on the cheap with minimal effort.
Use a real estate agent with experience in short sales
Real estate is a tricky business; short sales are trickier still.
A short sale can entail unexpected provisions that a green real estate agent won’t handle properly. It will pay to have an expert on your side should complications arise.
Propose an offer close to the home’s market value
The main draw behind a short sale listing is the chance to buy a property for below its true market value.
However, striving for a more conservative discount on the purchase will make your bid appear safer in the eyes of the seller and lender. While there’s always the temptation to try and milk a short sale as much as possible, getting greedy may cost you the opportunity.
Remember: no matter how close you cut your deal, you’re still going to be getting it for less than its value.
Prepare a solid pre-approval letter
Your loan information, credit check and accountability as a buyer are all obviously going to be of importance to the lender and seller.
With a pre-approval letter, you won’t need to wax poetic about how much you want to house. Just make it clear that your accounts are in order and you’re committed to the sale if things go through as planned.
In addition, you should do your best to get the various paperwork processed in as timely a manner as possible.
Offer a significant initial deposit
Down payments for homes regularly range somewhere from 5-20%, but there will probably be the expectation that you have a larger sum at the ready for a short sale.
Keep in mind that if the seller’s lending bank knows they’re getting a bad deal compared to the market value, they’re going to want every other advantage poised in their favor.
Provided you’re not curtailed by other fees, this higher initial deposit will hopefully be offset by the money you’ll save off the overall market value.
Follow up and take initiative at each step of the process
Make yourself loud and clear.
Even after your process has been submitted, you should follow up with the lending bank’s loss mitigation department. You’ll need the legal permission from the selling party to discuss their home loan with the bank.
Clear and direct communication can go a long way in any case; that way you’ll be the first to know if complications arise.
Study the fine print
Because of all of the cut corners involved in a short sale, don’t be surprised if the selling party tries to nab you with parts of the fine print.
The lending bank will seek to mitigate their losses however possible; this typically means making the buyer responsible for paying the entirety of the closing fees.
Insist on a final inspection
People usually only turn to short-selling their homes when they face imminent foreclosure.
Suffice to say, they’re not going to be very happy about the situation, and some people may take to making a mess of the place out of spite. Nothing kills the buzz of a new home purchase like arriving to find the walls and floors vandalized.
Don’t trust other people to do the right thing. You should make a point of inspecting the place firsthand before the deal is finalized and the keys are handed over. If malice or negligence has taken part, the onus will be on them to clear it up.
Common mistakes and risks of buying a short sale home
There's a powerful lure behind a short sale's low price. However, whatever savings make it no less important to consider the risks you may be walking into.
It's stressful to buy a home at the best of times, and the uneasy conditions of a short sale make it risky territory, particularly if you and the agent you're working with don't know how to handle it appropriately.
A home listed as a short sale doesn't necessarily mean it's a good deal. For starters, the base market value on the home may have decreased in the time since the current homeowner purchased the estate, possibly to the point where it negates the price you've had discounted. In other scenarios, the homeowner may have paid more money on the mortgage than their home was accurately worth.
Finally, you should always be aware of the possibility of hidden fees. Certain costs, such as the sale closing cost, are not accounted for in the listed price, so it's important to go over all of the potential fees.
Before you settle, it's always important to have the best home insurance package to keep your house protected. To save money on that, try bundling car insurance
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