If you’ve been shopping online for your first house, you must have seen the term “short sale” used in connection with some of the homes on the market. A “short sale” occurs when the homeowner has less equity in the home than the mortgage amount they owe to the bank. For example, the homeowner purchased the home in 2005 for $200,000 and in today’s market, it is worth $170,000. However, the mortgage owed against the home is still at $185,000. The homeowner is “short” $15,000 to pay off the loan when they sell the home.
Banks will often work with homeowners and reduce the amount they will accept as a final payoff on the mortgage. They do this because they fear that these homes will end up in foreclosure if they don’t help the homeowner to sell the home. It is estimated that banks lose about $56,000 on the average across the country, for every foreclosed home. If they work with the homeowner on a short sale, they might be able to reduce their loss.
However, there is nothing “short” about a short sale. Because these are non-traditional sales, they take a long time for the bank to process. A good estimate of time is about 60-90 days. So you and your Realtor could put together an offer for the seller on April 1st and you might not hear back from their bank till July 1st. Patience is key to a short sale. Eventually, you will hear back from the bank and there are some good deals out there.
Be sure to work with an experienced Realtor if you are purchasing a home on a short sale. They are complicated and there are some costly mistakes you could make that an experienced Realtor will prevent.
For more detailed information, come to our FREE NO OBLIGATION FIRST TIME HOMEBUYER class or wait for future blogs. “Simple answers to home ownership questions”.