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

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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.

A Realistic View Of The Challenges Involved In Buying Foreclosed Property

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Investing in real estate foreclosures can be just as difficult and sometimes more challenging than investing in other types of real estate. Often people make assumptions about foreclosures that can make the entire process much more difficult. There are many myths that people have been lead to believe that have caused many problems as you proceed down the path to homeownership. Understanding these myths and the problems they can create can simplify the entire process.

Financing

Since the majority of those looking for real estate are expecting to finance their investment it is important that you each reach a full understanding of the process before they begin. Most buyers believe that they should first find the property of their choice and then find an institution to finance it. However, according to some experts finding the best deals on loans will require you to secure the loan prior to searching for a home. Once you’ve found the property of choice you may not have the luxury of shopping around for the financing afterwards. The risk of losing the property while you search can become very real and you may end up losing out in the end.

Pricing

It is not always a guarantee that the price of a foreclosure is the best price on the market. Just as with any other type of real estate investment it is important that you take the time to compare the prices to other similar properties in the same location. There are times when the prices can be listed considerably lower than those of similar value, there are also times when the price can be considerably higher as well. You will have to view and bid on the property in the same way that you would any other real estate on the market.

Condition

Most foreclosed homes are sold “as is.” In a normal purchase you could reasonably expect to negotiate the price based on the repairs needed or the cost of pulling the property into a livable condition. However, with foreclosed properties this option is usually off the table. As a matter of fact, most foreclosed properties are already listed as low as the bank may be willing to go. While you may have a bit of leeway in negotiating the final price it would be in your best interest to understand that the pricing won’t change that much because of poor housing conditions.

Finally, you’ll want to consider the timing that may be involved with buying a foreclosed home. Because many of these homes are already priced well below current market value you can fully expect that they may not be on the market for a long period of time. Many of them could sell within days or even hours of the time they are listed. Being prepared to move when the opportunity arises will help you to get the right property when you find it.

Understanding that while foreclosures can prove to be an excellent opportunity for those looking to invest in it is also extremely important that you realize the unique challenges that may come with this type of property. It may seem difficult and at times be overwhelming there are many rewards when you choose to invest in a foreclosed piece of property. Keeping a realistic view of the challenges you face before you begin can help to take some of the edge off of the stress that may be involved.

Taking Practical Steps When Investing In Foreclosed Properties

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While everyone may have the idea of buying a dream home it is not always within reach. This is one of the reasons why many people choose to buy foreclosed properties. The idea is that they will find the perfect property at a discounted price and one can get into a property that they would otherwise not be able to afford.

This type of thinking is a common mistake that many people will make that can lead to some serious problems when buying foreclosed properties. The fact is that buying real estate that has been foreclosed on requires an investor to approach the transaction from a completely different angle.

It’s Not Always Easy

It’s true that you’re getting a great discount on the property you’re trying to invest in but the challenge that you may face is in finding the right location to choose. The effects of the past real estate crash has left some communities with as many as 80% of the homes foreclosed on. This floods the market with thousands upon thousands of choices so the buyer must sift through what seems to be an endless array of options that can tend to be overwhelming.

Before You Begin

Before you begin your search you should start by finding a good real estate broker to work with you. You’ll want the realtor you choose to be ready and willing to work with the financial institutions that holds the foreclosed properties on your behalf. You’ll also want to go to your own financial institution and get a pre-approval for your loan. While it is not necessary that you accomplish these two steps prior to your search, it can make a very difficult search much easier if they are done ahead of time.

Check Databases

Once you’ve taken care of the preliminaries it is time for you to begin your search. With such a large number of foreclosures on the market at any given time it will be necessary for you to filter the results and narrow down your choice of options.

There are several websites online that can automatically search through the available options and sift out possibilities that do not fit within your specified parameters. In addition to the many databases that you can choose from you can also check a number of other options to find the right investment opportunity.

It is always difficult to find and purchase the right piece of property to invest in. All of us are usually searching for something different and we each come to the table with different expectations. The entire process can be that much easier if it is approached with a very specific plan and goal in mind.

Unless you plan to pay for your real estate with cash it will be beneficial to have a strategy firmly set in place before you begin the process. It will take the edge off of many of the obstacles that you will meet all along the way. While investing in real estate may have its own hurdles having a plan will be the key to overcoming them to get into the right investment opportunity for you.

Recognizing The Differences In A Foreclosure And A Short Sale In Real Estate

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While many people may fully understand foreclose properties, the term “short sale” may catch them off guard. The fact is that both of these real estate investment opportunities can be the key to helping an individual get into the home of their dreams. Each comes with its own set of advantages and disadvantages that each investor must understand before they pursue their opportunities in order for their venture into real estate will pay off.

Aside from the fact that the lending institution initiates foreclosures after the property has been repossessed and the homeowner often initiates short sales there are some distinct qualities of each type of sale that a buyer must beware of. Both types of transactions can be made at below market rates but caution must be exercised for a number of reasons before you begin the process.

Often short sales are initiated when the homeowner finds that he is no longer able to maintain the mortgage payments and have fallen behind. If something is not done to bring the loan back into good standing the homeowner may be facing foreclosure in his future. This could damage his financial credit and his future in his home. For that reason many choose to exit their property through a short sale where they can resell the property at a lower price than they owe on it.

What a Buyer Should Know Before Buying a Foreclosure or Short Sale

Because these types of investments can prove to be both beneficial and detrimental there are some very specific steps that each investor should take into careful consideration. It is extremely important that you deal with a realtor that specializes in these types of investments. They will be able to guide you through all the steps needed to complete the deal and warn you of any potential pitfalls that may be coming your way.

Always consider the condition of the property. If you’re expecting to fix up a piece of real estate then you need to be aware of the fact that foreclosures will often come with an “as is” tag and there may be many hidden problems that you will not readily be able to see with the naked eye. Short sale properties are usually in a much better condition but may not be able to bring the lower price tag that comes with them.

What You Must Remember

Regardless of the professionals that you enlist to aid you through your investment decisions it is extremely important that you do some of the research and legwork yourself. Always remember the warning, ‘let the buyer beware’ when dealing with purchasing used property. Investing in real estate is most likely going to be one of the most expensive ventures that you will have throughout your life.

In addition to understanding market prices you’ll also need to find out as much as you can about the condition of the property and any possible liens and back taxes that may be owed. When you’re ready to invest in real estate of this type it pays to take the approach slowly and methodically making sure that every detail is completed thoroughly at each phase of the sale. If you can manage each step carefully, there is no reason why you won’t be able to find your dream home at an extremely affordable price.

The Difference Between Buying A New Home And A Foreclosed Home

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Many people are of the belief that the best real estate investment lies in foreclosures. While there is no question that one can find some exceptional deals in foreclosures this does not necessarily mean that buying a new home cannot offer some of the same if not better deals. There are pros and cons for each argument and it would be well worth your while as an investor to understand both sides.

Buying a New Home

The obvious caveat of buying a new home comes with the warranty protection that you will get. New homes have this added protection in the event that something goes wrong with the building that is a result of inferior materials or poor construction workmanship. New homeowners have the luxury of knowing that they will not be responsible for out of pocket repair costs if something were to happen.

Those who choose to buy new homes also have the advantage of better financing options. Some incentives set in place can save you thousands of dollars off the total cost of buying the property making it that much easier to secure adequate financing for the home of your choice.

Finally, when purchasing a new home you can often work directly with the builders to get the home you really want. If you begin the deal early enough you could customize certain features of the home; choosing the right cabinets, floors, and space design well before the home is completed. This means that you can end up with a home that will reflect your personal tastes and personality.

Buying a Foreclosed Home

By contrast purchasing a foreclosed home may get you lower prices overall but you also have to make some sacrifices in the process. There are a number of risks and challenges that come with purchasing these types of property. For the most part these homes come “as is” leaving you with no warranty or protection if something goes wrong.

In many states by law, any home set for resale is required to come with a “full disclosure” clause that should clearly point out any particular problems that the property must have. However, with foreclosures this is not the case so the buyer leaves himself vulnerable to any number of difficulties and challenges that may come along. If something were to happen the buyer has no possible recourse if problems are found later on.

Finally, there are always the many financing challenges that may come up. While you may have the luxury of securing financing after you’ve found the home of your choice, it is strongly recommended by many realtors that you secure your financing well-before you begin your search for the foreclosed property. At the very least this phase must be completed before you begin the bidding process.

There is no way to tell anyone which real estate investment option is the right one for you. Your decision will depend on your personal expectations and circumstances. However, understanding the common misconceptions that come with investing in real estate is a major step that everyone should take to make the transition to home ownership much more attainable.