Financing in 29406>Question Details

Nay, Home Buyer in North Charleston, SC

I am a qualifed buyer that wants to rent with option to buy while waiting on short sale approval. Is this a good idea?

Asked by Nay, North Charleston, SC Tue Oct 9, 2012

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David Benton’s answer
I don't know why they call them short sales when they usually take 3 to 5 months to close. lol

Some circumstances warrant extra time such as an IRS Tax lien that will take time to get released or are lien holders that the negotiator is working on signing a release from the property.

If the lender is the hold up, they are possibly just overloaded with too many files.

It depends on you more than anything. You should get enough information and then make an informed decision that is best for you and the seller.

I'm not offering legal advice here but just sharing what I would do if it were me:

If you put up option money with the seller you will very likely lose it. The option money would go to the seller or could be held in escrow. I would not the seller more than $10 or so for an option unless you put the option money in escrow with an attorney. If they are being straightforward the $10 should suffice. If they want more under these circumstances, I would be suspicious.

If you move in I would insist on a reasonable rent amount and lease term that is suitable and probably not just month to month. I would want a term long enough so that it was worth my while or the short sale was approved.

You can stack the odds in your favor. Consult an attorney and have them explain the risks, review all the documents and answer any questions before a final commitment is made.
0 votes Thank Flag Link Tue Oct 9, 2012
thank you very much
Flag Tue Oct 9, 2012
The correct answer is no!
0 votes Thank Flag Link Tue Oct 9, 2012
Nay - Renting with an option to buy can be an excellent vehicle for both the seller and buyer, but my advice as a Realtor is to be cautious of any rent/buy option, and extremely cautious on a short sale where, as already pointed out, the bank is in the driver's seat - not the seller (I assume you'd be executing documents with the seller?). Plus, there is usually a non-refundable deposit with a rent/buy option that typically the seller gets to keep if you fail to exercise your option to buy. If you pursue any rent/option to buy, you should always consult an attorney before signing anything. A Realtor familiar with rent/option to buys can assist you in structuring a deal, but any Realtor should insist you consult an attorney before signing. I picked up the pieces from a rent/option to buy gone very bad that ended up in court - I was asked to list and sell the property subject to the strangest court order you've ever seen.
0 votes Thank Flag Link Tue Oct 9, 2012
thank you for your advice!
Flag Tue Oct 9, 2012
Well, it depends on how it is structured, but I would suggest avoiding this situation all together in a short sale scenario. Other Realtors may disagree, but from a buyer's stand point, I don't like options to buy at all. You are usually taking on a much greater risk and you really don't gain any advantage. Again, it depends on how it's structured. My advice is to rent with no option. When you have a down payment saved, and you are pre-approved for a mortgage, then find a property in your price range. That is a much safer approach.
0 votes Thank Flag Link Tue Oct 9, 2012
I do have the down payment and I am qualified for FHA mortgage up to $135k. I am ready to go. The only thing is I don't want to wait 3-6 months for the short sale to go through. I had already waited on one short sale for 5 i/2 months and it went sour. I wanted to be in a home before the holidays. The listing agent suggested this rent with option to buy while waiting on short sale to go through, and I would be in the house.. Any suggestions?
Flag Tue Oct 9, 2012
Hey Nay
Not sure why you would do a rent option while trying to buy a short-sale unless you just need a place to stay other than where you are at? Some short-sales aren't taking as long as others, if you buy a Short-sale that has a bank approved price you can close in 30 days. If you need some direction or if you need me to find you a bank approved short sale just give me a call.

Spence Reese
Harbourtowne RE/Daniel Island
843-478-3104
Team.Reese@yahoo.com
0 votes Thank Flag Link Tue Oct 9, 2012
I had a contract on another short sale for which I had to get out of because I waited 5 1/2 months only to be told by the attorney it would be another 6-9 months. So when I saw this house, which happens to be a short sale with Wells Fargo the listing agent brought up rent with option to buy while wiating on the short sale to go through. Yes my desire was to be in my own home before the holidays. The last house I had a contract on was 618 oxford ladson, sc and it was such a nightmare. Weeks attorney and listing agent did not communicate with me at all and I waited 5.5 months all to be told another year possibly......
Flag Tue Oct 9, 2012
In this situation I would hold off on the rent option only because it is a short sale. All short sale situations are different and the bank has the upper hand. You may end up in a tight spot if the bank decides not to approve the price.

If you were to go with the rent option and the bank won't accept the price you could end up having to move again, and no one likes moving! The hard thing to understand about short sales is that the bank may refuse your offer even if you are writing a contract for exactly what they are asking. I've seen short sale contracts get denied on the day of closing so you never know!

Good luck and I hope I answered your questions!
0 votes Thank Flag Link Tue Oct 9, 2012
There are definitely some risks with this approach. What happens if the short sale doesn't work out for a price you like? Will you want to move again? Have you already found a home you have an offer on? You also take the risk of interest rates increasing while you wait for the short sale to be approved. You may want to get a home inspection prior to moving in so that you can negotiate repairs prior to moving in.
0 votes Thank Flag Link Tue Oct 9, 2012
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