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How to Acquire a House Through a Short Sale

by K.C. Hernandez

Acquiring a house through a short sale typically isn't an easy feat. The promise of a discount attracts buyers to these homes in which a seller owes more than the home is worth. A type of distressed property, a short sale may be in the beginning or advanced stages of the foreclosure process; they are also known as preforeclosure sales. You must shop effectively, demonstrate you are fully capable of buying the house and do your due diligence to ensure you find and close a short sale deal.

Collaborate with a real estate agent or real estate attorney well-versed in short sale negotiations to initiate your home search. Ask friends, relatives and colleagues who recently bought or sold real estate for referrals. Interview at least two agents before hiring a short sale professional. To locate an agent directly, you may find short sales online through real estate websites which post listings from your local multiple listing service (MLS). Once you locate a property that interests you, contact the listing agent directly for a tour. Listing agents can typically represent both the seller and buyer in a short sale transaction.

Gather your financial documents to apply for a home loan. Your real estate professional can help you find a reliable lender or you may apply through your local commercial bank or other mortgage-lending institution. Address the fact that you plan to buy a short sale, find out the lender's protocol and if it works for you. Most lenders won't underwrite your loan and provide a loan approval until you have an offer approved by the short-sale lender. In this case, you can expect a loan pre-qualification or pre-approval. A pre-approval is usually deemed more reliable by sellers and agents because it entails a more in-depth review of your credit and finances. As such, be prepared to show the lender your income, tax returns, bank statements and other asset documents..

Choose a property to bid on that meets your criteria -- or at least comes very close -- and your budget. Offer an amount based on recent sales and property condition. For example, don't overbid on a home simply to get your offer accepted by the seller. When you rely on financing, your lender may not lend you the money necessary to buy the home if it determines you're overpaying. A rudimentary home inspection and a comparison to recent sales in the vicinity can give you a good idea of a fair price to offer.

Include a clause in the short sale offer that stipulates the maximum amount of time you're willing to wait for approval. Often known as a short sale addendum, the clause lets the seller know he can rely on you to hang in there for at least the estimated amount of time it takes to receive lender approval, according to the seller's lender or agent estimate.

Wait the necessary amount of time for a seller response. The lender may respond with an approval, counter offer or rejection of the offer. Be prepared to increase your purchase price or remove a seller concession, such as seller-paid closing costs, repairs, home warranty or other items that can help the lender's bottom line. The lender arrives at a minimum sale price based on an appraisal report which it ordered, the home's condition and how much it must pay from its sale proceeds to close the deal. Reply to the lender's counter within the specified time frame on the approval letter -- usually no more than a few days later. Proceed with your loan financing process immediately upon short sale approval in order to meet the lender's closing deadline.

Tips

  • Patience is key to buying a short sale. Short sale volume and slow file review turn times often make the process long and drawn out. Get an estimate of how long the seller's agent expects the short sale approval to take and decide whether you can wait that long or possibly longer.
  • Have a back-up plan in case the short sale takes longer than expected or the deal falls through. For example, the lender may counter with a higher sale price than you can afford. Have other potential properties lined up to view because lender approval of a short sale isn't guaranteed.

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