In short, what are the qualifications for buying a short sale home or a pre-forclosure home?

Asked by Jessica, New York Sat Oct 13, 2012

I am a first time home buyer and while I do my online searching, I see a lot of these popping up, but I usually ignore them.

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Cliff Clover’s answer
Cliff Clover, Agent, Kissimmee, FL
Sat Oct 13, 2012
When buying a short sale home all you need is the same qualifications of a normal buyer that is proof of funds letter if you are buying cash or a pre- approval letter if you are getting alone when submitting your offer to bank or agent. You will also most likely need iron will and determination to stick it out it can take up to 8 months to close in some cases and be prepared for the deal to fall apart if the seller and their lender or bank cannot come to an agreement. Also, be don't be surprised if you are required to pay off any liens that the home has on it. Otherwise make sure you get a well experienced agent and you should be fine all the best.
0 votes
Javier Menes…, Mortgage Broker Or Lender, Melville, NY
Sat Oct 13, 2012
Hi Jessica. Buying a short sale is no different than qualifying to buy a regular sale. The only difference between a short sale and a regular sale is that in a short sale the listing agent or seller's attorney goes into a negotiation process with whoever is servicing the seller's mortgage. This involves sending the bank the sales contract you and the seller signed along with other required documents from the seller, mostly to show their inability to pay the difference between your offer and the actual loan balance. This negotiation process can easily take several months, depending on how strong and realistic your offer is, and also who is handling the short sale negotiation.

Buying a foreclosure is just a bit different. In this case the seller is the actual bank who foreclosed on the previous homeowner. So your offer is sent directly to the person who decides in behalf of the bank, and if accepted you can then enter into a contract of sale. They'll usually require you to do a 203(k) loan, which is an FHA loan that finances up to 96.5% of the sales price and the amount needed to rehab or update the property. You'll need a licensed and insured contractor and may even need a HUD consultant.

The 203(k) loans are not only for foreclosures, it can be used for any type of sale, depending on the properties condition and your desire to upgrade it or not. Also, you don't ALWAYS have to do a 203(k) on foreclosure properties, from time to time you find some that don't really needing work and you can do a conventional or regular FHA by turning the utilities on, again this isn't true most the time but it does happen.

In all loan scenarios you'll need to qualify with your income, credit and assets. The best thing for is to meet face-to-face with a loan officer and see what you can qualify for, if you haven't done so already.

Good luck!

Javier Meneses
NMLS #23130
Senior Loan Officer
Sterling National Bank
1 vote
Martina Ryan, Agent, Bayside, NY
Thu Oct 18, 2012
Pretty much the same as a regular purchase except you need more patience & the ability to wait. I suggest you hook up with an experienced Realtor if you are planning on purchasing a Short Sale.
0 votes
Anna M Brocco, Agent, Williston Park, NY
Sat Oct 13, 2012
Since short sales are listed with a broker, consider working with an agent of your own, he/she will best guide you. If purchasing with a mortgage, be aware that a mortgage pre-approval letter is required in order to determine your price range and for any offers to be taken seriously; therefore visit with any licensed loan officer. The qualifications for buying a short sale, are the same as buying any traditional sale. Short sale properties are sold as is.....
0 votes
Thomas Brady, Agent, Plainview, NY
Sat Oct 13, 2012
Hi Jessica, great answers below. I just want to add that getting a good buyer's agent to work for you will be very helpful if you are going to try and buy a short sale. The odds of a short sale actually closing are far less than a normal re-sale. That being said there are things a good agent knows to look for which can either increase or decrease the odds substantially, some short sales have virtually no chance of closing and you don't want to waste your time on those. A buyer's agent will be working for you but should be paid by the seller, I really wouldn'r recommend working with a seller's or broker's agent on a short sale. Just to differentiate on Trulia a short sale is for sale, a pre-foreclosure home has usually just missed some mortgage payments and isn't listed for sale but may seem so. Good luck!
Licensed Real Estate Salesperson
Notary Public, Retired N.Y.P.D. Lt.
#1 Listing & Selling Brokerage in NY
Charles Rutenberg Realty, Inc.
255 Executive Drive - Suite 104
Plainview, New York 11803
0 votes
Gail Gladsto…, Agent, 11743, NY
Sat Oct 13, 2012
Suzanne McDOwell's response is really dead on. I would like tho add that foreclosure homes are generally in really bad condition and may not be such a bargain if you are not a contractor. It may mean dropping a bundle of money into the reparation.
0 votes
Suzanne MacD…, Agent, Succasunna, NJ
Sat Oct 13, 2012
As a buyer the qualifications are pretty much the same as any purchase. It has to be an 'arms length' transaction, which means you cannot be related to, in business with, possibly even good friends with, the seller. You need to be well qualified for your own mortgage. And you need to be patient, though this is becoming less and less of an issue.

As a first time home buyer I would not ignore these homes. Make sure what you see on line is actual 'for sale' listings. There are companies that publish lists of homes who are in default, but that may not be available for purchase. The distinction is homes actually listed for sale will be listed through a realtor, it's pretty much a bank requirement. If you are patient you can actually get a very good deal on a short sale mostly because of the fact that most home buyers DO ignore them. Smaller buyer pool means lower price, so take advantage.
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