What is a Short Sale?

What is a Short Sale?

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Photographer: Helloquence | Source: Unsplash

Mortgage default rates in the U.S. have been dropping for the last ten years. According to the Consumer Financial Protection Bureau, mortgage delinquency rates have decreased by half since 2009. However, there are still plenty of Americans under the threat of foreclosure. Many are opting to make a short sale on their home.

Foreclosing on your home can have a number of downsides, including credit damage, the inability to get relocation assistance, and difficulty renting a property. This is why alternatives should be considered before you go through with it.

Now, it's important to note that a short sale isn't the right move for everyone. You need to be in a unique position for it to be beneficial. That's why educating yourself should be your first move.

Let's break down the basics of a short sale and go over some pros and cons.

The Fundamentals of a Short Sale

Sometimes homeowners end up in a situation where the value of their home is less than the remaining balance on their mortgage. Maybe they've been unable to make necessary repairs and maintain the value of the home. In many of these instances, the homeowner has suffered financial setbacks that have caused them to miss mortgage payments.

These scenarios often end in a foreclosure, but this isn't the only route. Another alternative is a short sale, in which the home goes on the market for less than the remaining mortgage balance. Homebuyers can negotiate with the sellers on a price and then seek approval from the lender.

This may not seem like a logical move for the mortgage lender, which is usually a bank. Why would they want to take less than what is owed by the current owner? It turns out there are some reasons why a lender would want to move forward with a short sale.

It's important to note this transaction can't happen without approval from the lender first. After all, they're the ones taking on more risk. However, sometimes a foreclosure is more costly and time-consuming for the bank. If the conditions are right, approving a short sale would be in their better interest.

Understanding the Process

The requirements for carrying out a short sale vary from state to state. However, the steps are generally the same. If you're considering this type of home sale, you need to make sure you understand the process and seek professional real estate advice if you have questions.

The first step involves submitting several documents to the lender. These include financial records and an explanation as to why the short sale is occurring. Once the seller gets an offer from a buyer, the real estate agent involved will need to send some items on behalf of the buyer. These include the offer, pre-approval letter, and a copy of the check for the earnest money. The bank will then review everything and either approve or deny the short sale.

If the sale is approved, it proceeds very similarly to a normal home purchase, with a few small differences. For example, the contract will state that the terms of the sale depend on approval from the bank. The home will also need to be purchased "as-is." While the buyer can still have the home inspected, negotiating for a lower purchase price based on the outcome of the inspection isn't an option.

Buyers should understand that even though they're paying the lender, the bank probably won't make any repairs. Plus, because the current owner is most likely in financial distress, they won't either.

Benefits of a Short Sale

On the surface, a short sale may not seem like the best idea. However, there are a number of advantages for both the seller, buyer, and lender. Granted, it's not the best scenario for the sale of a home, but we don't live in a perfect world.

For the seller, the biggest benefit is avoiding foreclosure. The foreclosure process can be stressful, costly, and ruin a person's credit. While a short sale won't look good on the seller's financial record, it's much less damaging than a foreclosure. Plus, the seller is absolved of further mortgage payments.

For the buyer, the main benefit is the ability to purchase a home at a lower price. Yes, they're buying a house that most likely has issues. However, if they have the means to perform renovations and they love the property, it's a good move. The buyer in a short sale may also be able to negotiate financing terms with the lender. Finally, because the seller is motivated, the process typically goes over smoothly.

Lenders can benefit from a short sale as well. The main advantage is that they're at least getting some of the remaining mortgage balance. This is better than nothing. Plus, the foreclosure process is a huge burden many lenders want to avoid.

Disadvantages to Consider

While a seller may be out of the woods when it comes to the threat of foreclosure, they'll still experience some drawbacks after a short sale. That's why it's important to weigh all options if you're considering moving forward with one.

There's a chance the lender will report the seller to the credit bureaus. This can damage the seller's credit score. However, this can take a while to happen and it's hard to gauge the extent of the damage.

Another disadvantage is that there's no way to know whether the short sale will be approved by the bank. It also may take a while for the bank to make a decision. This can be a stressful time, especially if the seller is experiencing major financial hardships. Plus, the bank will most likely go through all the seller's personal finance information, including tax documents, assets, and bank accounts.

Finally, a lender may opt to file a deficiency judgment due to the difference between the price of the home and the outstanding mortgage debt. This could result in the deficient amount going to collections or a lawsuit being brought against the seller by the lender. These things could happen even after the short sale has gone through.

Resources:

https://www.consumerfinance.gov/data-research/mortgage-performance-trends/mortgages-30-89-days-delinquent/

https://www.thebalance.com/deficiency-judgements-after-foreclosure-1798478

How do I know a Short Sale is Right for Me?

How do I know a Short Sale is Right for Me?

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Photographer: Eric Muhr | Source: Unsplash

Is a short sale a good idea? Well, that depends. As with any kind of investment, there are many points to consider before making a final decision.

For instance, are you selling or buying the house? What is your financial situation? These are all relevant points. In order to decide, you need to understand what a short sale is, its advantages, possible mistakes that you may commit and how it all applies to your specific situation.

What Is a Short Sale?

Life is full of ups and downs. Sometimes you commit to huge investments and then something happens. You can lose your job, for instance, and only find another one that pays considerably less. If your investment was a house and you've still got a mortgage to pay, then you can face a real problem.

The failure to pay the mortgage will damage your credit score and it can lead to a foreclosure. Fortunately, most banks never want to go down that road because everybody loses. So, in order to avoid trouble, several lenders can agree to have a short sale.

What is a short sale, then? It’s when someone decides to sell a residence for less money than what the person owes to the lender. The rest of the payment is forgiven.

Let’s look at this example. Someone still owes $200,000 to the bank for a house that originally cost $300,000. With a short sale, the person can sell the house for $175,000 and the bank will forgive the other $25,000.

Why would a lender do that? Wouldn’t it be losing money? Actually, no. Short sales can only happen during very specific situations that protect the lender.

In order to participate in a short sale, some rules have to be followed. The first one is that the house needs to be valued at less than the amount of money that the person paying the mortgage owes to the lender. This means that its value needs to have decreased considerably before now and the current owner has negative equity.

In the example from before, the house, which was bought for $300,000, would need to be valued at less than $200,000 now.

The other rule is that the lender needs to give permission in order for the deal to move forward. Without this agreement, nothing happens.

The Advantages Of A Short Sale

Short sales can present several advantages for both the buyer and the seller. Most of all, though, they present a huge advantage to lenders: they lose less money this way. The main reason for them to accept these deals is that they know that they have already lost the money anyway.

As the value of the house has gone down and the person who bought it is not even paying it anyway, any profit is profit.

The buyer can also benefit, because he/she has already lost money in this investment. For both the seller and the lender, a short sale can be great because it is really a way out of a huge mess.

That said, there are additional advantages to the seller. Your credit score will probably recover quickly after the sale is done. You can also avoid foreclosure, which is always a huge headache. The main advantage, obviously, is to go mortgage-free and finally have some peace of mind without owing a huge amount of money.

If you are a potential buyer, though, you should be asking yourself: don’t I get any advantages? Well, you certainly do, although they are not as big as theseller's.

Short sales are a great way to buy houses way below their market value. You can get huge discounts if the prices are considerably low and the house has no problems. This, however, is when most investors make a mistake. They do not know all the pitfalls that a short sale can bring if they are not careful.

The Most Common Mistakes During a Short Sale

If you are a buyer, this advice is for you: take care. Buying a house during a short sale means that there are considerably more chances that it may have issues. The last owner probably had financial troubles, so many things about the property may not be in order.

For instance, utility bills may be unpaid. Repairs may need to be done. Be sure to make an inspection before closing the deal. Sometimes that great investment is not really good when you see how much money you will spend later to fix it. Buying a house that does not need a lot of repairs is the best idea if you really don’t want to spend a lot of money.

Another good idea is to always visit the house accompanied by professionals. They are trained and will help you to spot any problems that may turn into inconveniences in the future.

It is also very important to consider is that there is a long wait before a short sale. The timeline for waiting for an answer can be a real pain for you if you are not willing to wait a lot. Offering a big payment can help you, but there are no guarantees.

You should know that other people may be interested in the house as well and that they may be the ones who will get to buy it. There is not much you can do about that, unfortunately.

Do Your Homework: Research Before The Short Sale

While a short sale can seem like a great idea at first, being prepared is essential. Whether you want to sell or buy the house, researching a lot is a necessity.

If you want to sell the property, you should do the math and determine if getting rid of this problem by losing the house is worth it. Sometimes, if you can pay the rest, it can still be a decent investment. However, in some situations (such as not having the money to pay at all) selling the house is the best outcome.

In case you are looking to buy a new home, you should check your priorities, follow all tips about the most common pitfalls and really do a lot of research about the property and its condition before deciding.

Four Things You Should Know About the Short Sale Process

Four Things You Should Know About the Short Sale Process

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Banks don't want to lose money. The bank is absolutely going to lose a lot of money if someone forecloses on their house – but less so with a short sale process.

Foreclosures are what happens when the owners can't pay their mortgage and the bank sells the home to the highest bidder, trying to recover some cash, as they're technically negative on that house. You can see some homes, that are valued at $200,000 or more, foreclosing for under $100,000.

It's a great deal for the buyer, but not such a great deal for the bank. A short sale, on the other hand, is a step above a foreclosure. The bank is still going to lose some money in the transaction, but not nearly as much as they would with a foreclosure.

And if you're looking to buy a house, happening upon a short sale seems like you've hit the lottery – but the short sale process isn't for the faint of heart. Want to learn more about it and see if it's the right strategy for you? Keep reading.

What is a Short Sale?

Imagine that you bought a $200,000 house. You put 50,000 down as a down payment (good for you!) so your mortgage is 150,000. Now for whatever reason, you can't afford your mortgage anymore. You can't pay your bills and a foreclosure is looming.

What do you do? You, as the seller, could look into a short sale. You put the house on the market at a low price, and collect offers. Then you go to the bank and tell them "we can't afford to pay back all 150,000 – but would you accept one of these 50 offers that are less than what we owe, but aren't as costly as a foreclosure?".

The bank then looks through the offers and says yes or no. If they say yes and accept a particular offer, the people essentially sell their mortgage for less than it's worth back to the bank, in exchange for their home.

But do you see the catch there? It was hidden, so if you didn't, no worries. Here's the issue: short sale homes can collect tens or even hundreds of offers. That's not such a good thing for a buyer, who thinks they're getting an unbelievable deal and are just "waiting on the bank's approval".

In reality, there's a very, very small chance that a buyer's offer is accepted on a short sale home, just due to the volume of offers.

What is the Short Sale Process?

That's not to say that a buyer can't get a house at an unbelievable deal with a short sale. It's entirely possible – but you can't get too emotionally attached to one house (or one low price). If you want to "win" a short sale, here are four things you need to know.

1. Bulk it Up

If you're determined to get a house for a really good price through a short sale, you have to put in offers on a lot of houses. One investor who makes YouTube videos says he and his team put in 100 offers on different short sales every day.

Then, months later, they might win 1-3 out of those 100 short sales. It can take that long and be that competitive.

And here's the issue with that for most people. They don't have the capital to go through with three short sales, even if we were to win them. So how do you amend that strategy for someone with a more realistic budget?

Keep putting in offers on short sales, but don't do 100 a day. Maybe do one every other day, if the house is in your area. A short sale isn't something you want if you have to move in ASAP. It can be months before the owners even take the offers to the bank, let alone get them approved.

2. Know When to Engage in the Short Sale Process

Short sales are not quick sales, even though the "short" in their name makes it sound like they are. It takes longer to go through with a short sale than it does to buy a house the conventional way.

That's to say, you have to know when to start the short sale process. If you're just starting to think about moving but you still have six months to a year, then you could play the short sale game. But if it's May and you have to move by August – skip the short sale process.

If you put all your eggs into that basket, you could very well find yourself moving into a too-small apartment and still waiting on approval come August.

3. Make a Higher Offer

One good way to get a head start on short sales is to research the true market value of the home. Sites like Zillow make this easy, and you can see what homes around it are worth. Now – you absolutely shouldn't offer the full market price.

That defeats the purpose of a short sale. But if it's listed for 50% of what it's worth, come in at 70% or even 75%. Remember – you don't really care what the owners think of the offer, it's more about what the bank wants.

And the bank is going to lose money on this sale, no matter what. So if you can make that gap smaller for them, they're more likely to approve your offer.

4. Be Very Patient

If you haven't figured it out yet, short sales aren't for people that lack patience. You're not just going to get that good of a deal without paying some sort of price. In this case, the price is time.

If you can put up with waiting then you're ready to play the game.

The More Offers the Better

Now that you know about the short sale process, what do you think? Will you try to get a home for a good deal, even if it means waiting a while? Let us know.

5 Reasons a Short Sale is Your Best Option

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Often people hear about the concept of a short sale and think it means the homeowner is in default on their loan. But that’s not always the case. Default is not necessary with every short sale. And not every short sale is caused by foreclosure.

Short sales occur when a bank decides to take a lower payoff than the overall balance of the loan. The amount of the mortgage is not a crucial component. What’s significant is your home’s price and market value. If your house is worth more than the mortgage, you may do a short sale.

This can be done as long as the net profit is below your loan’s total balance.

Despite common beliefs, your house doesn’t have to be underwater or upside down to do a short sale. An “underwater mortgage” is a home loan that has a greater principle than the value of the house on a free market.

It’s the bank’s net proceeds that determine if the house can be a short sale. If the sale’s net income is less than the outstanding balance owed on the loan, that home will be a short sale. This can happen even if the property is worth more than just the mortgage.

Here are 5 reasons why a short sale can be your best option:

1. You Can Short Sale Without Defaulting

 While many short sales involve a residence in foreclosure, a pending foreclosure doesn’t always mean a short sale.

To prevent making mortgage payments, not every bank needs a short sale. Some people can actually qualify for a short sale without being in financial difficulty.

With banks, just the chance of a default on a loan can qualify the seller for a short sale. The seller doesn’t always need to be behind on the loan.

If a seller can initiate a short sale without reporting late payments on a loan, this can lead to a stronger FICO score for that seller, rather than the alternative ding to one’s credit.

2. You Can Stop Worrying about Foreclosure

 There are numerous reasons why a borrower may not be able to make mortgage payments.  Financial hardships and unforeseen life events are completely understandable.  “Expect the unexpected,” right?

When you fail to make your mortgage payments for anywhere between 3 to 6 months, the failure to pay is usually met with a notice of loan default.

If the borrower wants to try and stop the home from going into foreclosure, they can attempt to enter a settlement of the debt with the lending bank. This settlement is what’s done in the form of a short sale of the home.

3. You Can Save Your Credit Score

 From an individual credit score perspective, a short sale is extremely preferential, particularly when judged against the possibility of foreclosure.

Credit scoring companies take a dark perspective on foreclosures and will file a lower credit score than to someone who carefully examined their options and decided to go with a short sale as the alternative.

Not only does it protect a person’s credit score, but it also keeps them in the playing field and allows for an easier home buying process in the future.

4. You Can Preserve Your Future of Home Buying

In many cases, the largest financial moment in an individual’s life is buying a home and taking on a mortgage. Preventing the worst case of a foreclosure, a home seller can more easily justify a short sale, such as deciding to move elsewhere for example.

On the flip side, buying a home after a foreclosure, and the resulting destruction of a person’s credit will be nothing less than a nightmare and a half!

5. You Can Avoid the Sales Fees

 

With the traditional sale of a house, the seller carries the strain of payments and fees. This includes paying commission rates to employed real estate agents.

These real estate agent fees can generally cost the seller up to six percent of the final sale of the house. But with a short sale, these fees and commissions are paid to the agents by the bank.  Direct savings for the seller!

Short Sales: Summarized

Typically, an interested buyer will make an offer that meets the values of the property. But often a seller is not in the position to accept such an offer, because the bank is the deciding factor.

In these instances, the lender must approve such offers since they are lower than what is owed on the home loan itself. The seller would then complete an application for a short sale along with the supporting information to be submitted to the lender.

This supporting information may include a letter indicating the seller’s hardship and the reasons for the inability to pay back the difference of the potential offer from the buyer.

Often, proof of income, as well as tax returns, are needed to show evidence of the hardship. An appraisal of the home will be done, and if it ends up reflecting a home value that matches the offer from the potential buyer, the bank may choose to accept it.

 

Other Considerations for Your Short Sale

Remember, this is not a quick or easy process.  It usually takes several months to go from start to finish. To make up for its financial loss, the bank will often require that the home buyer pays for the closing costs of the home as well as repairs.

Once your short sale is complete, the debt is settled, and you are free from the debt and payment. To sum it all up, a short sale is much better for your credit score and your future than a foreclosure is. So, remember, your best bet may very well be a short sale.

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How to Get the Best Deal When Negotiating a Short Sale

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Within the first six months of 2018, over 300,000 United States properties either faced default notices, bank repossessions, or the Auction Block. If you’re facing financial troubles and selling your home at a loss may be your only option, it’s important to know how to go about a bank short sale and what it will involve.

If it’s time to move on from your home, read on for more information on approaching the bank with a short sale and how to get the most out of it.

What is a Bank Short Sale?

Whether you are looking to get out of financial trouble, or simply need to move on from your home when the market is less than ideal, you may be looking at a potential short sale.

At it’s most basic definition a short sale is when a homeowner sells their home for less than they originally paid. Meaning your home is now at a loss, or that you’re falling “short” on your investment.

While short sales are becoming less common due to a gradually improving economy, many individuals still face the prospect of having to sell their home for less than desired.

How Does a Short Sale Work

Your typical short sale situation will look something like this: Initially, a home seller will put their property on the real estate market, offering a short sale or subject lender deal to those that may be interested in buying.

Since short sale deals dramatically benefit the buyer, it won’t be long before the first offer will come in.

From there, the homeowner is responsible for contacting their bank to submit a formal application requesting the authorization of the short sale.

It’s important to note that there’s no direct guarantee that the bank will, in fact, approve the short sale. Once the bank has reviewed the pending application, there’s a good chance they will send out an appraiser to review the full value of the house and to be sure that it’s aligned with the current sales offer.

How a Short Sale can Benefit You

While a short sale may sound less than ideal, there are still a number of benefits that come with the solution.

For example, a short sale is a better alternative than a foreclosure when it comes to your credit score. It’s also emotionally easier to face the problem head-on than to stand under the pending doom of a potential foreclosure.

Finally, with a short sale, you won’t have to pay additional home sale fees. Typically real estate agent will take home 3% to 6% commissions on a home sale. The short sales are handled by the bank, so any additional fees and commissions are then covered by the bank.

How to Present a Short Sale Offer to Your Bank

As mentioned, there’s no guarantee that your bank will approve your offer for a short sale. However, you’ll find there are some steps you can take to enhance the likelihood of approval.

Part of the request for a short sale is that the short sale Bank will request your authorization for third-party. This means that third-party would have access to your personal information, something most individuals want to avoid.

However, it’s important to know that without the approval for the authorization you will be looking at slimmer chances of your application being approved.

Choosing the Right Short Sale Bank

Another way to increase the likelihood of having the application approved is by choosing a short sale bank with a reputation for approval.

This may mean looking into public records for previous property sales to see exactly which banks take on the most short sales in your area.

Bring in a Backup Offer

If you can come to the bank with more than one offer pending on the property this is a great way to show the bank that your short sale is a wise investment choice for them.

This will provide the bank with some security in case your current potential buyer falls through. The bank knows it will not be left with the house on their hands.

Why a Bank May Reject Your Short Sale Offer

In some cases, a bank may flat out say no to your short sale offer. This can be due to a number of reasons that in some cases can be adjusted for a secondary application.

These reasons often include a short sale list price that seems too high, a poor short sale definition, an incomplete short sale package, or that the seller or buyer simply does not qualify.

In some cases, it may already be that the bank has sold your loan and no longer is the one to be negotiating with.  In this case, the bank has no say as to what can and cannot be approved in terms of the loan.

Educating Yourself on Short Loans

The best thing you can do when presenting an offer to a bank is to have as much information to back you as possible. Spend some time doing the necessary research to increase your results of a solid bank short sale transaction.

If you’re looking for more information on what to expect from your short sale, check out our Blog on 7 things you never knew about the short sale process.

You’ll find that these tips and information can be incredibly useful when it’s time to put your house on the market or to submit your application to the bank.

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What Is Short Sale Approval? A Guide to How Long to Wait for a Short Sale

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You’re in the market for a new home, whether for yourself or flipping purposes. While browsing local listings, you find one well below market value and your eyes blink twice, making sure your mind isn’t playing tricks on you. 

Before you swarm that apparent steal of a home, you need to consider whether or not it is a short sale property. If it is, then you need to be careful about your time frame. 

How long do you have to wait before closing on the house? If you have some time to spare, it just might be worth the wait!

Today, we’ll take a closer look at how long it takes to get a short sale approval on a home. 

What is a Short Sale? 

First up, let’s make sure we’re all on the same page about what a short sale home is. 

Sometimes, people have trouble making mortgage payments. Maybe life circumstances changed for them or maybe they didn’t read all the fine print and agreed to some unfavorable terms. 

Regardless of the reasons, it can become difficult and stressful wondering if someone if someone is going to show up at your doorstep. Avoiding countless voicemails and e-mails can become tiresome, too. In the end, these people often look for easy ways out, which might come in the form of a short sale. 

A short sale is when the lender (usually a bank) agrees to sell the home for less than what a person currently owes on it, forgiving the difference. Banks often favor short sales over foreclosure, because foreclosures can be long, difficult, and cost more money in the long run.

Plus, the homeowner is able to walk away debt-free, and you get a home for under market value. It’s a win-win-win for everyone.

These types of sales were especially common around 2010 during the mortgage crisis. To this day, they still happen fairly often. 

How Long Until You Get a Short Sale Approval? 

You may not want to hear this, but the answer is, “It depends.” 

As a motivated buyer, that can be a tough pill to swallow. Maybe this home is for yourself and you need to move in right away. Maybe you’re planning to renovate to boost profits by flipping the home, and you can’t wait any longer.

Either way, the ambiguous nature of the short sale approval process and its timeline can really throw a wrench in your plans. 

The Short Sale Process

First, you need to see the process from beginning to end to get a good idea of why certain aspects might take longer than others. In general, the steps are:

  • Seller contacts bank and applies for the short sale program
  • Seller is approved and is sent terms of the short sale
  • Seller finds a qualified real estate agent who specializes in short sales
  • Home is listed, usually for under market value (also after the home value is estimated) 
  • Buyer submits an offer to the bank
  • Bank either approves or counteroffers 
  • If approved, bank submits approval letter to the agent

As you can see there are a lot of moving parts, and any one of them could potentially hold up another. 

The Short Sale Timeline

Again, it’s difficult to give anyone exact numbers on this because it varies on a case-by-case basis. 

In general, though, you can expect to wait up to a couple of weeks to receive confirmation that your offer was submitted. After that, a bank will need to get an estimation of the house value. 

This can usually take up to a month, although it can take up to another month to review the estimation itself. From there, negotiations take place, which is often outsourced and can take another month to two months. 

Finally, it can still take up to two months or more for the bank to officially approve the short sale.

All in all, this process can easily last six months, but it depends on many factors, including:

  • The lender
  • The real estate agent
  • The negotiator
  • You

Everyone plays a role in the timeframe, and if someone is not on the ball, it can make the whole short sale approval process lag. For example, the lender who you are making offers to may be understaffed. 

It could be as simple as someone not having enough people to handle the number of sales they are working with. That being said, you as the buyer are an important part of the process and you can do your own part to move things along. 

What a Buyer Can Do

If time isn’t in your favor, and you need to move the short sale approval process along, you should do everything you can to help. For one, your offer is a big factor. 

A lot of times, what holds up a short sale is when people make lowball offers.

It’s easy to look at a short sale as an easy way to get a house at a steal. But there are limits, and banks may take longer to respond when the original offer is so low. 

Plus, sometimes, the counteroffer may be so much higher, that you’ll need to abandon ship anyway. 

It’s important that you carefully discuss this sale with your real estate agent beforehand. Find one who specializes in short sales, because they will know the current local market and how to approach it.

Patience Pays Off

It can be very tempting to jump all over a short sale home that is listed well below market value. But timeframe is an important aspect to consider, especially if you don’t have a lot of time to spare. 

While the short sale approval process can vary from one person to the next, it can easily take up to six months. Sometimes, the key to a quicker approval is to choose your real estate agent wisely, be wise about your offer, and know when to follow up. 

If you’re interested in getting more info on real estate investment, check out some of these top places to invest in 2019!

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7 Things You Never Knew About the Short Sales Process

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The year-over-year growth of real estate prices has started to take a downturn for the first time in a number of years. Where we saw growth of 10% last year, this year’s growth was only 7% and that number is likely to continue to trend downward as federal interest rates rise.

With the market beginning its transition from a seller’s market to a buyer’s market, the subject of short sales has started to crop up in many real estate circles.

What are short sales? Is it okay if I need to short sell my home? What sort of investment opportunities does the short sales process offer to investors?

For the uninitiated, short selling a home is when a homeowner sells their property for less than what they owe their lender.

In this article, our aim is to give you insight on the short sale process in 7 quick facts.

1. Short Sales Are Different Than Foreclosures

Foreclosures are the result of sellers falling behind on their mortgage payments and the bank forcing the sale of the house. Short sales are a lot less dire.

Short sales come as the result of homeowners needing to get away from their property during a down market, homeowners trying to work out deals with their bank to avoid foreclosure, and a few similar situations.

Furthermore, short selling your home does not damage your credit in the same way a foreclosure does.

With a foreclosure, you could be sitting with a black mark on your credit for up to a decade. With a short sale, you could get another home loan within a couple of years.

2. You’ll Need to Get Approval for a Short Sale

One of the stickiest parts of working through a short sale is getting approval from your lender. As we mentioned in this article’s intro, a short sale in real estate is when a homeowner sells their home for less than what they owe the bank.

That means that at the end of the sales process, the previous owner will still owe their lender a sum of money. Lender’s concern over the amount they’re going to lose is why banks get involved in the short sales process.

In order to get approved for a short sale, typically, you’ll need to prove a few things. These things could include proof of financial hardship and/or a major life change.

3. Bankruptcy Can Cause Issues with Short Sale Approval

If you’re considering going through the short sale process, chances are you have broad financial issues. These issues typically encompass a number of outstanding debts that come in addition to what you owe on your home.

Since bankruptcy prevents debtors from collecting money from you and short selling your home is technically a form of debt collection, it can sully the process.

Talk to your bank or a third party financial advisor prior to declaring bankruptcy whilst pursuing a short sale.

4. Bringing on a Real Estate Agent Can Be Helpful

Selling your home via a short sale is a lot more involved than selling your home via a standard for-profit sale. There is a lot of additional paperwork involved that can be harrowing to deal with if you’re not a real estate expert.

That’s why it’s important to consider bringing on a real estate agent to assist you with your short sale. While agents are an additional expense that can put you at an even deeper deficit with your bank, the expediency and possible higher sale price that they can bring to your home are often worth their fee.

5. The Short Sales Process Is Long

A lot of people read the term short sale and assume that the period of time it takes to sell a home though it is short.

Makes sense, right? Not only is “short” included in the title but it stands to reason that selling your house at a cut-rate in a down market would entice buyers to make offers quickly.

Unfortunately, the speed of short sales doesn’t live up to its name. As a matter of fact, it’s not uncommon for short sales to take as long as 9 months to be completed.

This is largely due to the level of involvement your lender will have in approving buyers and making demands which can seriously hamper down your sales process.

6. Buyers Beware when Buying Short Sales

Given lender’s heavy-handed approach to short sales, only a quarter of short sales actually close.

That means that 75% of buyers making offers on short sale homes leave disappointed. Most offers fall through because of how long they take to get approval.

If you’re a buyer looking to score on a short sale, don’t be in a rush to get into your new property.

7. Investors Flush with Cash Love Short Sales

Short sales are homes sold out of desperation. A desperate seller often means a very happy buyer.

If you’re ready to make a cash offer on a short sale home, you’ll get a lot of attention from sellers and their banks which could expedite the amount of time it takes for you to get your purchase approved.

Once you have a new piece of property in your portfolio, you can sit on it until the market turns back up (or even sooner if you’re lucky) and turn a considerable profit!

Wrapping Up Things You Never Knew About the Short Sales Process

The short sales process is typically arduous and filled with pitfalls. That being said, it’s preferable to foreclosures and presents an outstanding opportunity for the patient buyer or cash-rich investor.

We hope that our 7 facts above have helped you better understand short sales.

If you’d like more information on short sales, real estate, and more, check our additional content on Short Sale Blog today!

investment property financing/buying a foreclosed home

The Beginner’s Guide to Investment Property Financing

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Only 7 million Americans (or 3% of the population) consider themselves to be real estate investors. Yet, real estate is one of the best ways to make money.

From renting to renovating and selling, there are so many ways to make your investment property profitable. In fact, real estate is safer and often yields a better return than stocks.

But first, you need to secure an investment property loan. Read on to learn what you need to know about investment property financing so you can get started.

Understand Your Credit Rating

The first thing you need to do before getting investment property loans is to look at your credit profile. This will give you a sense of where you are financially and what options you should pursue.

Get a free copy of your credit report from any of these credit bureaus: Experian, Equifax, and TransUnion.

You may find items on your credit report that you need to dispute. Now is the time to fix any errors and understand what position you are in.

If your score isn’t great, you can take some time to raise it before you try to get a mortgage for an investment property. But, you don’t have the time to wait for your credit to improve, you can still move forward with securing an investment property loan.

Gather Your Down Payment

The best way to secure investment property financing is to have a sizable down payment. The more money you can put down, the better chance you have of getting the best interest rate.

You will need at least 20% down in most cases. While many times people use the sale of their home to gather a down payment, you probably aren’t selling.

There are various ways you can gather some money for a down payment if you don’t have it in savings. You may want to find an investment partner. Maybe you know someone who doesn’t have the time to dedicate to an investment property but are willing to partially fund the project.

Collect Your Paperwork

The next step is to make copies of your financial documents. You will need these documents as proof your financial situation before you can get a loan.

Print out two months of bank statements and credit card statements. You’ll also need statements from any investment or retirement accounts.

Be prepared to present your two most recent pay stubs from your current employer. You’ll also need to bring your driver’s license and Social Security card.

If you are self-employed you will need to show your business license, your tax returns for the past two years and bank statements. You may also need a letter from your CPA as proof that you have been self-employed for the past two years.

Now, you’re all set for the next step.

Get Pre-Approved

Once you have your documents ready to go, you can start to try to get pre-approved for a loan.

By now you should have an idea of how much money you need and what type of home you’ll be investing in.

Getting pre-approved means that you get a document in writing that states that a lender is willing to loan you a certain amount of money. This document is useful when you work with the seller. It shows that you won’t back out because you couldn’t get financing.

Sometimes it’s difficult to get approved by traditional banks for an investment property. Especially if your credit isn’t stellar and your down payment isn’t huge.

But that is not your only option.

Consider Neighbourhood Banks

A neighborhood bank may be a better fit for you compared to a large national financial institution.

Typically, neighborhood banks are more flexible. They want to invest in your local area and often have a better grasp of your area’s market than banks.

Go With A Mortgage Broker

You may also want to work with a mortgage broker to find an investment property loan. Brokers have access to a large variety of loan options and can secure you one that you might not have been able to get on your own.

Just make sure you research the broker you plan to work with. Make sure they have the required credentials including a college degree. You can ask if they belong to any professional organizations before you settle on any one broker.

It does take some work on your part, but it is worth the effort if your broker finds you what you need.

Explore All Your Options

Still no luck? Well, that means it’s time to think outside the box. Don’t abandon your dreams of having an investment property just yet.

Especially if you have your eye on a particular property that will yield a great profit such as a foreclosure. Just make sure you understand how to get a profit from fixing a foreclosure home.

You might find that a home equity line of credit or taking a lump sum out of an insurance policy is the right solution for you to get a decent down payment.

You can also get investment property loans from private peer-to-peer lenders. There are various sites such as Proser and LendingClub connect investors with individual lenders.

Each lender may have specific credit score requirements. That means it may take time to find a suitable lender. Yet, for the most part, private lenders may be more willing to take more risks than banks.

Final Word on Investment Property Financing

There you have it. A beginner’s guide to securing investment property financing.

Remember, to stay positive. Repeat real estate investors will tell you that getting the financing for the first property is always the hardest.

As your credit improves and you build a proven track record of success, your future projects will be easier to get going.

Next, read about common real estate investment mistakes to avoid.

The Las Vegas Short Sale Market: From Then Till Now

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Las Vegas’ housing market has traditionally been considered a weak one, with banks dominating local real estate. But as the market improves home owners are managing to do fine without their help.

The Greater Las Vegas Association of Realtors says that as of January 2014, 70% of used home sales are comprised of private buyer seller deals. That is an improvement of 19% from 12 months ago and an increase of 26% compared to two years ago.

As Las Vegas makes its slow recovery from the recession it is evident that both locals and investors are buying and selling properties in the market.

The banks are still actively involved in handling the short sales market, but there are decidedly fewer foreclosures. Short sales made up nearly 50% of all real estate deals a year ago but now only account for 21%.

Remember that the “short” reference in the name is not a reference to time span, it is a reference to paying short on your mortgage. If anything a short sale could turn into a lengthy process so be prepared.

Foreclosures On The Demise

One of the reasons short sales have become so popular in the Las Vegas property market is the attractive alternative they present to foreclosures. In Fall of 2012 Nevada signed in its robosigning law. This forced the banks to deliver more paperwork before they could seize homes. This has slowed down foreclosures significantly and reduced the number of homes for sale by the bank.

The Short Sale Market

When the Las Vegas property market decreased in value, lots of investors entered it, with the intention of buying short sale properties cheaply and renting them out. This demand resulted in Las Vegas property values growing at one of the fastest rates in the country.

In November 2013 the median price of a Las Vegas home stood at $167 000, a 31% increase from a year ago. However in the third quarter of last year it emerged that 40% Las Vegas’ home owners who had mortgages were upside down, or had debt greater than the value of their homes. This gave Las Vegas the highest rate in the United States, but it was still well below 71%, the national peak two years ago.

A Different Response To The Ups And Downs Of The Las Vegas Property Market

Some Las Vegas home owners have made peace with the market trend, opting to wait it out and escape negative equity. If the values do rise they have the opportunity of making a traditional sale without the need to enter into short sale negotiations. Economics experts argue that home owners are no longer as panicked as they used to be about the prospect of a short sale. And while there are still short sales available, there are a lot fewer than there used to be.

The lesson that can be learnt from this, is that you can also postpone or avoid a short sale simply by being patient. If you have no reason to sell right now, then don’t do it.

The Short Sale Market In 2013

The short sale market took off in 2013 as the result of a combination of a number of different factors. The first major factor was banks issuing default notices to home owners who were not paying their monthly installments. By contrast notices were not issued towards the end of 2012, resulting in the foreclosure rate dropping to an all-time low in December of that year.

Secondly the Co-operative Short Sale Program incentivized all major lenders to enter into short sales. Thirdly the Mortgage Forgiveness Debt Relief Act was extended until the end of 2013, from its original date at the end of 2012.

From Then Till Now

Since they appeared for the first time in 2007 short sales have changed tremendously. At that time it was very difficult to convince banks to take up the short sale process. These days the banks also want to avoid foreclosures and are more receptive to adopting short sales as an alternative to help achieve that.

The Short Sale Market In 2014

The number of short sales has had a positive influence on the Las Vegas property market to date. The market is now experiencing something of a revival as foreclosed and short sale buyers have used their opportunities and re-entered the market.

Short Sale Advice For Property Buyers In Las Vegas

It is advisable that buyers keep a buffer between their offering price and what they could end up paying for a property. Counter offers from lenders have become more popular for properties in the short sale market, sometimes asking between 3 and 5% higher than the original asking price if a buyer is interested.

The counter offers are sometimes used as short sales can turn into lengthy processes. The short sale market for properties under $100 000 is especially solid at the moment.

An experienced short sale realtor who has proven success dealing with properties that are under water will be able to help you make an informed decision about your property and how to sell it. Remember that vacant homes cost the banks more money so if you really cannot sell, it is in the bank’s best interests to accept a short sale. Your short sale agent will be able to help you apply with your lender. He or she will also help you to be prepared for the process and advice you how long it should take, so you can make all the other necessary arrangements.

There are a number of specialist short sale agents working in Las Vegas who all have significant experience handling short sale properties. If you need to make a choice shortlist from those who have sold the most properties.

Short sales have helped a number of Las Vegas residents to change their lives and take control of their finances again. They present a proverbial lifeline to people who owe more than they can sell their homes for on their mortgages.

The Most Common Mistakes to Avoid When Buying a Short Sale

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Are you looking to snap up a home via a short sale?

Well, the idea of buying a new home at a fraction of the price doesn’t seem possible. However, this is the reality for a number of home buyers and investors who are able to find a short sale.

If you’ve never heard of a short sale or aren’t sure what it is, then this article is for you. We’ll also discuss some of the mistakes you should avoid making when buying a short sale.

Let’s review.

What is a Short Sale?

Simply put, a short sale is a home that’s sold for less than what the homeowner owes on it. At this point, the lender won’t get all the money it’s owed. This works out in situations where the house is in foreclosure.

The only way a home can be sold on a short sale is when the lender approves of it. Now, while this may seem like a great advantage as a home buyer, there are some expenses you must be aware of.

These typically occur after the purchase of the property. For instance, say you purchase a property, then end up paying $50K in renovations. These are considered hidden costs, especially if you were unaware of the amount of work required beforehand.

It’s essential to have a reliable inspector inspect the property to ensure there’s no major damage from termites or with the plumbing, foundation, and electrical system.

Next, let’s review some of the most common mistakes buyers make when purchasing short sale houses.

Not Reviewing Property Issues

Again, knowing what’s wrong with a property is key when you’re trying to get a “deal.” It’s not much of a bargain if you spend more than you bargained for.

There are instances where prior property owners are spiteful and damage the property. Then there are other cases where properties sit empty for years and develop plumbing and mold problems.

Whatever issues exist in a home, be sure you know about all of them before you sign on the dotted line.

On the upside, you may qualify for loan programs like Fannie Mae HomeStyle that offer assistance to home buyers that have to renovate.

Not Having a Home Inspection

It’s not enough to talk to the past owners, the realtor, or the bank. It’s also not good enough to do a walk-through of the property on your own. It’s best to have a knowledgeable expert inspect all areas of the property.

If you have to hire more than one, then do so. Everything from the plumbing and electrical to the foundation and roof requires inspecting.

There are a number of expensive problems you can run into, such as termites and structural damage. Plus, these problems can be dangerous. Do note there’s a time frame for having a home inspected, which is called an inspection period.

In a short sale, this can give you leverage when it comes time to make a final deal.

Not Reviewing Legal and Insurance Details

Buying from a bank comes with risks because they often sell properties as is, without any disclosure. This means you have to do extra research on your part. Normally, a disclosure statement will detail things like whether a home is within a floodplain or if there are unpermitted renovations.

You can get cited by the city if you make renovations without getting them permitted and approved. If this is present in your property, then it falls on you, whether you did the renovation or not.

Not Giving Enough Closing Time

The process of buying a short sale property is a bit longer than with a typical home. This is because the lender has to go over and approve the foreclosure terms and price. This will be lower than what the home seller owes the lender.

Of course, this leaves them with the short end of the stick, which is why they’re not so quick to let the property go. This will tarnish their reputation since most won’t want to get a loan from a bank that has a mortgage on a short sale.

Choosing the Wrong Property

Unfortunately the saying “if it seems too good to be true, it probably is” couldn’t be more factual for buying short sales. In many cases, if the deal is a bit too low for a property, then there’s likely more to it than meets the eye.

This is where common sense comes into play. It’s important to consider whether you’ll be able to afford to rent it out at the same rate or less than the mortgage payments you have. And how much do you have to invest to make the property habitable?

Not Offering Enough

When you’re presented with a short sale, you’re tempted to go as low as you can. However, making low ball offers isn’t the way to go. While the lender is trying to avoid costly foreclosures, they’re still trying to get as much as possible.

This means you could end up outbid, losing your chance of getting the property. Also, if your offer causes a greater loss than a foreclosure would, then they’re not going to accept your deal.

Offering Too Much

While you can make an offer that’s too low, there’s also the possibility of putting too much on the table. There has to be some middle ground when making your offer.

When you end up paying too much on a short sale, you could end up “upside down.” This is when you paid more than the current market value in a market that’s declining. In other words, it’s going to take a very long time to see the value rise to a profitable level.

Any investment you make should yield an ROI. The only way to do this is to buy low and sell high. You can’t do that if you purchase a short sale house with a declining value, especially if it’s lower than what you purchased it for.

Buying a Short Sale Home

Now that you have a better idea of what a short sale is and the mistakes to avoid, it’s time to consider buying a short sale property.

If you’re looking to learn more about short sales and investing in properties, keep tabs on our blog. You will find a ton of great tips and information you can use to ensure you’re making profitable investments.