Foreclosure vs Short Sale: What You Need To Know

April 3, 2019

© Olivier Le Queinec | Dreamstime

If you’re in the market for purchasing a home, looking into foreclosures and short sales might seem like a more affordable way into homeownership. The properties can be quite inexpensive in comparison to the traditional housing market, and if you’re a seasoned buyer, the idea of a fixer-upper might sound appealing. But before you invest more (or any) time looking into these types of properties, you should know the exact difference between foreclosures and short sales and what to beware of as a potential buyer. A foreclosure occurs when the homeowner has been unable to make mortgage loan payments for three to six months, and is still unable to make up for the missed payments after the loan defaults. A short sale happens before the home is foreclosed where the homeowners contacts the lender and negotiates a sale price lower than what is owed on the property. It's important to know the difference because a foreclosed home means the buyer has to purchase the home sight unseen and you're unable to request a professional inspection. Not to mention many disgruntled homeowners may destroy the property or leave it in complete disarray. You'll need to have some patience with a short sale, which can take significantly longer to purchase than a traditional listing (upwards of 3 to 6 months) as the seller and lender negotiate on a price. No matter what the seller says the price is, it is up to the lender to approve the actual price, so make sure you are talking directly with the lender for the property price. Like a foreclosure, you are buying a short sale property in an "as is" state, meaning you will be responsible for any repairs and lenders usually won't even talk to you unless you agree to take care of any structural concerns that usually would be handled by the seller in a traditional sale. However you can request a home inspection of your own so you'll have an idea of what you are getting before you make an offer. Ultimately, if a foreclosure or short sale listing interests you, make sure you do all the research and understand all of the risks.

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SOURCE: Apartment Therapy

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