When homeowners are behind on mortgage payments, they may find themselves owing more than the property is worth. Often this leads to foreclosure. However, in cases of severe financial hardship, a lender may grant the owner relief by allowing him or her to sell the home for less than they owe on the mortgage.
In real estate terms, this type of sale is a “short sale”. While the process is more complex than a typical home purchase, it may allow home buyers to get more for their money.
What are the potential benefits of a short sale purchase?
A short sale purchase may enable a buyer to purchase a home for less than the appraised value. That can make for both a good investment opportunity and a chance for buyers to make the most of their budget. Additionally, unlike foreclosure, during a short sale the owner continues to live in the home, making it more likely that the purchased property is in good condition.
What are the potential downsides?
The short sale process can be both time-consuming and uncertain. The owner must meet certain requirements to receive approval for a short sale. A deal may easily fall through if the lender prefers to foreclose or does not agree to the price the seller sets. Finally, short sale purchases are typically as-is; buyers may get a good price, but they may also have to budget for certain repairs.
The complexity of the short sale process can also mean less competition for available homes. However, buyers should still do their due diligence when preparing to make an offer. Carefully researching home values, getting mortgage preapproval and maintaining a patient attitude may help ensure that the sale goes smoothly.