A lot of short sales are being sold these days. In May they represented about 10 percent of the existing home market and typically had a 14 percent discount according to the National Association of Realtors (NAR). But if short sales are attractive how can they be financed?
Short sales can be complex. The owner is trying to sell the property for less than the value of the mortgage. That means lender approval is required, otherwise the owner must bring cash to closing.
If you're interested in local properties at discount -- either for investment or as a primary residence -- then you have to think about financing. Here are five major questions to consider:
- How much time will be needed? Under new federal rules most lenders have been required since June 15th to review and respond to short sale requests within 30 days and provide a final answer within 60 days. Also, after 30 days lenders are supposed to send out weekly progress reports.
While the new rules will speed short sale transactions, they're not perfect. For instance, a loan lock-in can be lost if closing does not take place within a specific time frame and a lender's answer could be negative.
- How many lenders are involved? Many distressed homes have two lenders and not just one. Dealing with an additional lender can make negotiations complex because both lenders will want the smallest possible loss.
- Is there insurance? There may be FHA, VA and private mortgage insurance -- and there may also be "pool" insurance paid for by lenders and mortgage investors. Reviews by insurance plans can delay short sale outcomes.
- Will you pay cash for the property or get new financing? NAR says that 21 percent of all existing home sales in May were cash transactions. If cash is not a practical option then get pre-approved. Make sure you have financing in place with a solid lender that has short sale experience. Also, be certain to have cash reserves for repairs, vacancies, etc.
- What about appraisals? If you need financing you'll also need an appraisal. Ask what happens if an appraisal comes in low or if a new lender or mortgage insurer requires certain repairs as a condition of the sale.
While short sales raise interesting questions such transactions are now fairly common. At Carrington Real Estate Services our sales professional are very experienced in handling this type of transaction and can answer your questions and discuss local short sale opportunities.