What is a Short Sale?

What is a Short Sale?

/0 Comments/in /by
Sign here
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?

/0 Comments/in /by
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

/0 Comments/in /by

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.

A Short Sale Isn’t the End of The Road; Things to Look Forward To

/0 Comments/in /by

When the housing bubble burst in 2008, it was a very dark period for many Americans with almost ten million losing their homes to foreclosure or short sale. With foreclosures on the increase for the first time in almost five years, it’s becoming a real possibility for many people again, but it isn’t as bad as it may first seem. Explore what happens and what you can look forward to in terms of a short sale in the guide that follows.

Firstly, What is a Short Sale?

A short sale is when you sell your home for less than the mortgage you owe on it. This means that the lender doesn’t get all the money that they are owed. A short sale is permitted in several conditions:

  • You are in negative equity, which means that you owe more than the home is currently valued at
  • The home’s value has decreased substantially
  • The lender has given permission

Your lender writes off the difference between the amount you owe on the property and how much the home is worth.

Things to Look Forward To

  1. Your Credit Score Will Recover Quickly

If you keep paying your mortgage until the short sale, then you will be in pretty good standing afterward. Usually, it can take about two years for a lender to accept your application for a mortgage, but some people have bought homes within six months. Your credit score will dip initially, probably by around 150 points, and although that may seem a lot, it’s much less than you would lose with a foreclosure. Think of it as a minor drawback, rather than the end of the world. Plenty of people recover from short sales. A new trend of boomerang buyers (people who lost their homes to short sales between 2007 – 2013) is projected to make up about 17.5% of the housing market.

  1. Help Available

Even when you’re down and out, there is help available. The FHA (Federal Housing Administration) has provisions for those who had to make a short sale because they lost their job. There is a Back to Work loan program which can help you reapply for a home loan in only 12 months after selling your home in a short sale, as long as you can prove that you lost 20% of your earnings. There are lenders out there who are sympathetic to those who made short sales and are happy to consider individual cases. Don’t simply give up!

  1. Becoming Cash Smart

Most people have never been taught about property law or buying a house. They simply learn as they go. It is built into the American dream that you grow up, get a job, buy a house, start a family. However, at school or college, they don’t teach us the basics of how to deal with these. We tend to learn as you go, and of course, mistakes happen.

If you have to sell your home in a short sale, when it comes to buying again, you will know better what you need to do. Anyone who is buying for the second time is better equipped. They know what to expect and the mountains of paperwork required. They also know what went right or wrong last time. If you have lost your home in a short sale, you will probably qualify for some housing counseling, which is invaluable to teach you what you need to know about buying a house.

Five of the most valuable things you learn when you’ve gone through a short sale are:

  • Not to overextend yourself next time around
  • Be more careful about what you buy
  • Planning to stay in a property for longer, at least five to seven years
  • Put a higher down payment on a property, so your monthly payments are more manageable
  • Be prepared for unexpected circumstances, such as death, dips in the property market, job loss etc.

  1. Avoiding Foreclosure

You’re probably wondering, “How is this something to look forward to?” but talk to anyone who has been through a foreclosure and you’ll understand why. Firstly, foreclosure is painful for all parties involved. A foreclosure stays on your record for ten years and it’s usually at least seven years before you can even consider buying another property.

You won’t be able to borrow money from normal lenders, so it could push you further into money problems. It affects your credit rating massively. Also, even with your home gone, you could be held liable for the money owed to the bank. The bank can obtain a deficiency judgment from the court for the monies owed, and you will then need to pay this also. Avoiding foreclosure could be the best thing that you do for your credit.

  1. Going Mortgage-Free

When your short sale goes through, it gives you the opportunity to move to a new area, to try out somewhere you may have thought about or to move near a good school for your kids. When renting you don’t have the same responsibilities as a homeowner and after being through a stressful year or two with money, this can be really refreshing. Although you’ll still have a monthly payment, it’s not as stressful as a mortgage. You aren’t locked into this loan and you have much more flexibility. If you want to move in less than a year, you can. People get caught up in the idea of owning a home, but after you have got rid of one mortgage, you may find that renting is a dream for you.

Peace of Mind

If you weigh it up, selling your home in a short sale could open the door to a different life to the one you have now. You’ll feel so much relief from being free of the shackles of a mortgage that you may never go back to having one. However, if you do want one, then you’ll be eligible for one far faster than if you go through a foreclosure. So, try not to think of a short sale as the end of the road, merely a fork that leads you onto a new road of your choice, full of possibility.

commercial property loans

Commercial Real Estate Loans 101: Everything You Need to Know

/0 Comments/in /by

You’re driving home from work one day and you see it!

A FOR SALE sign is posted in front of that busy strip mall. You know the one with popular retails stores and a parking lot full of cars. You notice the phrase Short Sale dangling from the bottom of the for sale sign.

Have you finally found that gem of an investment opportunity? When the average return on investment for commercial real estate is 9.5 percent, it’s certainly worth finding out!

If you think this might be your gem, you’ll need to learn about commercial property loans. Keep reading to get some commercial real estate lending basics.

What Is a Commercial Real Estate Loan?

A commercial real estate loan is a mortgage on a commercial property. A commercial property loan can be used for acquisition, development or construction.

Commercial property is income-producing real estate that is used solely for business purposes, such as:

  • Office buildings
  • Strip malls
  • Warehouses
  • Industrial plants
  • Malls
  • Medical centers
  • Hotels
  • Farmland
  • Apartment buildings
  • Garages

Unless you have the cash to pay the full purchase price of a commercial property, you’ll need to secure financing. How hard could that be? After all, you have a residential mortgage. Isn’t it fair to assume a commercial mortgage wouldn’t be much different?

This assumption would be a rookie mistake for first-time commercial real estate investors! Both types of mortgages are collateralized with real estate, but the similarities end there. Let’s take a look at the differences.

If you’re looking for commercial real estate opportunities in orange county, click here. 

How Are Commercial Property Loans Different from Residential Property Loans?

The best way to understand the differences between commercial mortgages and residential mortgages is to put yourself in the shoes of the lender. In short, commercial mortgages are perceived as riskier investments than residential mortgages. Here are a few reasons for the perception of higher risk:

Your priorities. If you’re in the position to be purchasing commercial property, you most likely own your own home. When a lender reviews all of the debt obligations of a borrower, they think about which obligations a borrower prioritizes if their ability to pay all their bills were to become limited. Lenders know that a borrower will prioritize payment of their residential mortgage over their commercial property mortgage.

Secondary market option. When you signed your residential mortgage loan agreement, you probably agreed to allow your mortgage to be sold in the secondary market. Fannie Mae, Freddie Mac or the Federal Housing Authority (FHA) can buy your mortgage from your lender. When this happens, your lender is no longer carrying the risk that you won’t pay the loan.

On the other hand, commercial property loans are rarely sold in the secondary market, so lenders keep these mortgages on their books. In other words, your lender maintains the risk that you will not pay back to loan. The lender will only grant commercial real estate loans to borrowers that they are confident will pay off the mortgage as agreed.

Source of repayment. When you applied for your home loan, you were asked to show proof of income. Based on that proof, the lender knew how you were going to pay the mortgage payment. It’s a little more complicated for a commercial real estate loan.

The source of repayment for a commercial real estate loan is often from tenant leases. For example, if you purchase a strip mall, you may have 6 tenants with leases that expire at different times. This is a risk to the property’s cash flow, the source of repayment to the lender.

Rate and term. Commercial property loans are their higher interest rates and much shorter repayment schedules. This higher rates and shorter terms are directly related to the lender’s risk assessment.

Do You Qualify for Commercial Real Estate Loans?

As you may have guessed based on our discussion above, it’s more difficult to qualify for commercial property loans than residential real estate loans. It’s a rigorous application and due diligence process.

Lenders have different criteria to determine who is a qualified borrower. In addition, lenders adapt their lending criteria based on market conditions. But all lenders will evaluate you based on some combination of the following five factors.

Character. A minimum credit score of 680 showing a track record of repaying debts as agreed, including a credit history without tax liens, foreclosures or recent bankruptcies.

Capacity. A positive net operating income on the property and at least a 1.25x debt service coverage ratio.

Capital. Equity injection of 20 to 35 percent of the property’s purchase price.

Collateral. Different types of real estate have different levels of risk for lenders. This impacts the assigned loan-to-value which can be anywhere between 50 and 90 percent.

A single purpose property, like a church, has a lower loan-to-value than a flexible purpose property, like an office building. If the collateral is owner-occupied, this will increase the loan-to-value.

Conditions. Choosing a commercial property in the right place and at the right time are important considerations. Lenders know you can’t necessarily control the economy or industry but you can research and be prepared to address any weaknesses in market conditions.

How Do You Apply for Commercial Real Estate Financing?

You understand by now that lenders have high expectations of commercial property loan applicants. Read below for a few tips on preparing for a smooth application process.

Research lenders. There are thousands of commercial real estate lenders. Some lenders focus on small loans, some on large; and some only lend against certain property types. You need to research lenders to identify where you’ll have the strongest possibility of qualifying.

Gather documents. Lenders’ requirements vary. Are you an individual applying for your first commercial real estate loan? Are you an experienced commercial real estate investor? At a minimum, the lender will need to see the following:

  • 3 most recent years personal tax returns and a personal financial statement
  • 3 most recent years of business tax returns and financial statements
  • 3 most recent months of bank statements
  • Property lease(s)
  • Property rent roll (if not 100% owner-occupied)
  • Property Income and expenses
  • Evidence of cash-on-hand for your down payment

If you’re a first-time applicant for a commercial property loan, you should be prepared with a business plan demonstrating your ability to manage commercial property.

Submit application. Consider applying to multiple lenders to increase your chances of approval. If you receive more than one approval, you’ll have some negotiating leverage with your lenders.

Be patient. Loans for commercial real estate take longer to close. Some lenders may promise less than 2 months but expect up to 6 months to close on a commercial property.

Review the loan agreement. Commercial property loans are often structured with a 3- to 5-year term and a 15- to 20-year amortization schedule. This means that you’ll have a large balloon payment at the end of the loan’s term. Do you have a plan in place to make the pay-off?

You Owe It to Yourself

Now that you understand the basics of commercial property loans, find out what type of investment in real estate you want. Maybe you want to learn more about that short sale of the strip mall.

Whatever type of commercial property you decide to buy, this guide has prepared you to put your best foot forward with lenders.

5 Reasons a Short Sale is Your Best Option

/0 Comments/in /by

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.

bank short sale

How to Get the Best Deal When Negotiating a Short Sale

/0 Comments/in /by

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.

investment property financing/buying a foreclosed home

7 Mistakes Buyers Make When Buying a Foreclosed Home

/0 Comments/in /by

You’re ready to buy your dream home and want to get the most for your money. You’ve been hearing there might be some great deals on the market, especially if it’s a house in foreclosure. Maybe you could get a bigger house or more land if you buy one that’s foreclosed.

You’ve heard that you can save between 5% to 20% off market value. When you are buying a house, that’s a big chunk of savings. 

While the rate of foreclosures has generally slowed down, they are still out there and offer some advantages. Consider these 7 things if you are thinking about buying a foreclosed home. 

1. Consider Repairs and Costs

Often a house in foreclosure is there because its previous owner had a financial hardship. It might also be a house that sat empty for a period of time. It could be dirty, neglected or even been the victim of vandalism. 

Don’t get caught up in the excitement of how much money you are saving. It is necessary to consider how much you also need to spend. If the house needs repairs, there is a cost associated. The house may need extra work and money.  

With a foreclosure, it is important to consider the actual dollar amount for repairs and labor. Additionally, once you invest that money back into the house will you have spent more than the house is actually worth? 

Avoid buying what you perceive as a deal. Then spend so much on repairs, you have outspent the true value of the house. 

2. Failure to Get an Inspection

While you might be looking to save money with buying a foreclosure, skipping on an inspector is a terrible way to save it. 

Inspectors are trained professionals who can figure things out about a house that you can’t see on the surface. Depending on where you live, a certified inspector charges between $300-$500. This is money well spent. 

The inspector can identify potential issues before you make the big purchase. Is there mold, a problem with the plumbing, the furnace? These are all expensive issues you would want to know about before buying a foreclosed house. 

3. Going It Alone Instead of Using the Professionals

Buying a foreclosed home is just not the same as buying a non-foreclosed house. Trying to do it without the advice and guidance of real estate and legal professionals is a big mistake.

Buying this kind of home is fraught with potential problems and intricacies. You need a professional to guide you through the process. Find a real estate professional who understands the process of purchasing a foreclosure. Legal advice is also necessary to make sure the laws and regulations connected to foreclosure are being followed in your favor. 

Purchasing a home, not in foreclosure, can go pretty quickly. You can get to closing often in 6 to 12 weeks. Buying a foreclosed home often takes much longer. Using a professional as part of the process can help prevent unnecessary snags that might lengthen out the process. 

4. Clean Foreclosure

You want to be certain you are buying a house that is a clean foreclosure. What does that mean? Clean floors? Clean showers? Not exactly. 

A clean foreclosure is one that also does not have liens, tax debt, or utility bills that come with the house. If you purchase a foreclosure that is not clean, you could be incurring those liens and bills with the house. This could add unexpected costs to the purchase. 

5. Buying More Than You Can Afford

Many an investor has had things go wrong when they buy more house than they can afford. This is particularly tricky with foreclosures. 

If the foreclosure needs repairs, more money is needed. The value of the house may change increasing the tax burden connected the home. 

It is easy to think you want to buy a bigger house because you can get it cheaper. No more than 20% to 25% of your take-home salary should go to your mortgage costs. 

Be wary of thinking you can buy a more expensive house just because you can get it cheaper at the time of sale.

6. Not Doing Your Homework

 Buying a foreclosure comes with some homework. These houses come with some baggage. This could come in a variety of different forms:

  • liens, tax bills, utility bills
  • neglect
  • abuse from the previous owner

If the house is bank-owned, it will not come with a disclosure statement.  If the previous owner is not directly involved in the sale, you will not get information about the house from them. 

Research and use inspectors and real estate professionals to learn as much as you can about a foreclosed house. Prevent it from creating surprises for you later. 

7. Short Term Vs. Long Term

Buying a foreclosed home can be a great investment, but you need to be prepared. Many investors go into it thinking they will do some quick fixes and flip it to make some quick money. 

It doesn’t always work that way with foreclosures. Often they go down in value before they come back up. Thinking you can flip a house short term could backfire. 

You need to factor in the money you have invested in the property to get it resale worthy.  Then you need the market to support the higher price. 

Professionals believe you should plan to stay in a foreclosure purchase for up to ten years before it becomes worth the investment. Consider whether you want to buy a foreclosure hoping to make a quick buck. If so, this is likely not the route for you. 

Invest in a foreclosure knowing the long term is where you will make money on the property. 

Buying a Foreclosed Home Successfully

You can get a great deal on a foreclosed home, there is no doubt about it. You could buy a foreclosure and transform it into the home of your dreams. But you need to be smart about it. 

Buying a foreclosed home requires you to do your homework about the property. Use professionals to help you through the process. A healthy dose of realism is smart too. 

Learn the ins and outs of purchasing a foreclosure by checking out the resources on our blog. We want you to find the home of your dreams and it could be one that had a foreclosure in its history. 

short sales process/short sale approval

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

/0 Comments/in /by

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!

how to renovate a house on a budget

How to Renovate a House on a Budget and Boost Your Profits

/0 Comments/in /by

Are you considering selling your home?

For the majority of homeowners, your home is the biggest investment that you have. So, when it comes time to eventually sell your home, you want to ensure that you are maximizing your profits and making the most of your investment. 

One of the best ways to maximize your profits is to renovate certain aspects of your home and opt for a facelift. While home renovations can be costly, there are steps that every homeowner can take to minimize the cost of a home renovation and make it affordable. 

If you’re considering doing some home renovations before listing your home for sale, you’re going to want to read this. We’re sharing our best tips for how to renovate a house on a budget. Not only are these tips sure to increase the value of your home, but they’re also incredibly wallet-friendly for those on a budget. 

Goodbye dark, 1990s kitchen and hello bright, contemporary kitchen! 

1. Opt for DIY Projects 

First things first, it’s best to opt for DIY projects that allow you to conduct the upgrades yourself. 

The truth is, hiring contractors is one of the most expensive aspects of renovating a home. In forgoing this cost, you’re bound to save a large portion of your budget. 

Today, DIY projects have never been easier for the common homeowner to conduct. Even without a contracting background or experience, online videos make it possible for the common homeowner to conduct renovations. 

Fortunately, the majority of these home renovation projects are simply facelifts. This means that very limited knowledge is required for completing these tasks and the majority of homeowners are capable of completing these tasks. 

2. Replace Carpeting

If you have carpeted flooring, it’s always worthwhile to consider installing a more appealing option. 

Of course, most buyers today prefer to have hardwood. That being said, there are still ways to strive for a classic wood floor look but without the price tag. This is where laminate flooring or engineered hardwood come into place. 

Remember, carpeted flooring is more prone to holding spills as well as scent. 

3. Paint Kitchen Cabinetry 

For many families, the kitchen is the heart and soul of the home.

After all, this is typically where friends and family gather in daily life as well as times of celebration. In understanding this fact, it’s clear why an upgraded kitchen will appeal to potential buyers. 

Fortunately, upgrading your kitchen doesn’t have to mean a total renovation and spending thousands of dollars. Instead, it’s best to focus to attention on providing your kitchen with a facelift rather than a renovation. 

The most simple and effective means of providing your kitchen with a facelift is to paint your cabinetry. This has the ability to transform dark, outdated cabinets into bright, contemporary cabinets. To finish, you can also upgrade the handles and light fixtures to provide a fresh, modern look.

4. Make Use of Recycled Materials 

Where possible, it’s always best to opt for recycled materials throughout your renovation. 

If you’re replacing doors, windows or even flooring, why not peruse the lightly used section? This is a great way to source high-quality materials without the high-end price tag. 

Many businesses such as Habitat for Humanity carry secondhand furniture. This furniture is often of high-quality and is donated by contractors, real estate professionals and homeowners. 

5. Apply a Fresh Coat of Paint 

Applying a fresh coat of paint is the most inexpensive way to give a new sense of life to a home. 

Remember, your aim is to keep your home as neutral as possible. This means repainting walls that are bold in color and opting for neutrals such as white and grey. This also serves as your opportunity to cover up any major holes or scratches in your current paint. 

Fresh paint is also extremely beneficial to the photography for your future listing. This is extremely important considering that 95 percent of buyers use the internet to find their future home. 

6. Maximize Curb Appeal 

The entryway is often the aspect of the home that many homeowners mistakingly forget about. 

The truth, however, is that the entryway is possibly the most important aspect of home when it comes time to selling. In fact, studies reveal that 99 percent of real estate representatives suggest that homeowners focus on correcting their curb appeal prior to selling. 

Remember, the entryway of your home is what radiates either positive curb appeal or negative curb appeal. Without great curb appeal, many potential buyers will forgo the opportunity to view the interior of the home. 

To maximize curb appeal, be sure to minimize your furniture, maintain your grass and gardens and minimize furniture. It’s also beneficial to update your entryway door or opt to paint it a bright color. The door sets a tone for what is expected to come of the rest of the home. 

How to Renovate a House on a Budget 

One of the most significant concerns homeowners face prior to selling a home is whether or not to conduct any renovations. 

While there’s no doubt the kitchen needs upgrading and the walls could surely benefit from a fresh coat of paint, are these renovations worthwhile?

The truth is, there are a number of home renovations that every homeowner can conduct without going into serious debt. These projects are minimal, DIY friendly and won’t take a large hit to your wallet. 

If you find yourself wondering how to renovate a house on a budget, why not take these renovations into consideration? In the end, these simple renovations are sure to increase the appeal of your home and, in turn, maximize profits. 

Once you finish these renovations, you can move onto your next step of finding a realtor. If you’re looking for tips on how to choose the best realtor for your sale, be sure to visit our blog post!