Before the U.S. housing market boomed and then crashed, you may never have heard the term “short sale.” Now, it’s common to hear the phrase as you search for a new house. A short sale occurs when a property is sold for less than the homeowner owes on the mortgage. The seller’s lender has agreed to take less for the home than is owed on it.
Why do sellers opt for a short sale? Perhaps they can no longer afford to pay the mortgage but they want to avoid a foreclosure. Or, maybe they need to move but their home is worth less than they owe on it. While a short sale will impact the seller’s credit report, it is not as bad as a foreclosure.
As a buyer, there are a few things you need to be aware of if you’re considering buying a home on short sale. First, know that the transaction will take longer than a traditional home sale. The mortgage lender needs to approve the seller’s request to sell the home for less than is owed on it. Also, since there are so many foreclosures and short sales on the market, banks may be facing a backlog as they try to process them all.
Second, like a foreclosure, you need to know what you’re getting into. Short sale homes are often sold as is. Have the home inspected, and know what the costs of repair or maintenance will be before you buy. Don’t ignore major problems just because you’re getting the home at a bargain price.
Third, in a short sale, the seller’s lender is not likely to pay for the buyer’s closing costs, which would traditionally happen in a home sale. The lender wants to walk away from the sale with as much money as possible, so they may be unwilling to pay your costs. Closing may cost you more than it would in a traditional home sale.