Short-sale homes offer buyers and investors a great chance to snap up property at a considerably lower price than what it is normally worth. However, short-sale transactions are more complicated than standard real estate purchases. Generally, they take longer, and you’ll have to deal not only with the seller but with the seller’s lender, as well.
If you’re looking to buy a short-sale home in the San Joaquin Valley, you’ll likely find competition from other buyers and investors, but not as much as in a foreclosure. To give you good picture of what to expect, here’s a look at what the process involves and what to watch out for:
- Finding the right property
You can find potential short sales through the following:
- Work with a Realtor who specializes in the area you’re interested in and get their help in finding potential short sales
- Check the MLS (Multiple Listing System) for listings marked “Short sale” or “Pre-foreclosure”
- Look into courthouse filings for homes listed as “pre-foreclosures”
- Check legal advertisements. Many attorneys post ads for short sale homes on behalf of their clients
In reviewing available short sales, find out how much the owner owes on the home compared to the property’s value. The higher the debt, the more likely the owner or lender will put it up for a short sale. If the owner has plenty of equity, the lender will probably choose to foreclose and sell the property at a price closer to its market value.
Get mortgage pre-approval. Many lenders will only consider offers by buyers with pre-approval and, preferably, a higher down payment, as these indicate the buyers’ financial soundness. In addition, you typically only have 20 days to process the financing of the purchase after you reach an agreement with the seller and the lender, so you should have the preliminary financing processes worked out by then.
Short-sale homes are typically not in the best shape and will require substantial repairs and renovations. This is why it’s very important to have a professional inspection before you finalize the purchase. Get an idea on how much you might need to spend for the renovations, and factor this in coming up with an offer price. Likewise, research on how much you can likely sell the property for after you’ve restored it to top condition.
Unlike in a regular real estate transaction, short-sale buyers also need to get the approval of the seller’s lender before the sale can be finalized. After you and the seller have agreed on the sale price and other purchase terms, you need to submit a proposal for the short sale to the lender. The proposal should include:
- A purchase contract signed by you and the seller
- A hardship letter from the seller, accompanied by documents, indicating why they are unable to pay the balance of their loan
- An appraisal report showing the property’s estimated market value
- A list of liabilities and expenses related to the ownership of the home
- A settlement statement that includes your purchase price and the costs involved in closing the sale
The lender might issue a counter-offer, so be prepared for more negotiations. If the seller has a second mortgage or more, all lenders must reach an agreement about how much each receives from the short sale.
As Realtors who specialize in Merced, Turlock, and Chowchilla real estate, we will be happy to provide the guidance you need in buying a short-sale home in San Joaquin Valley. Call Soldavi Realty at 209.975.7653 or email info(at)soldavi(dotted)com today.