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Is It Better To Buy A Short Sale Or Foreclosure?

October 28, 2022

It would be a huge understatement to suggest that the real estate market has been acting erratically lately. Everyone is searching for a deal because there are fewer homes for sale and loan rates are rising.

Could a bank-owned or "short sale" property provide the solution? Is it better to buy a short sale or foreclosure properties in the first place?

Economical home buyers are aware that properties advertised as short sales or foreclosures might sell for thousands less than their real value, resulting in savings that could be advantageous to a buyer in both the short and long term.

While there are some parallels between the two types of properties, there are also some significant differences that you should be aware of before investing.

How Do Short Sales, Pre-Foreclosures, and Foreclosures Differ?

Three of these properties have one thing in common: the current owners are all in financial trouble and are unable to make their mortgage payments. Anything from a job loss to a significant medical condition might cause that in life.

So, what are the differences?

Short Sale Property

The present owner of short sale homes is still in possession of them. They happen when an owner tries to escape foreclosure by selling their house for less than what is owed on their mortgage and the lender allows them to do so. When a property is "upside down" on its mortgage, meaning the owners owe more than the house is worth, this most frequently occurs.

Pre-Foreclosed Property

The present owner is still in possession of a pre-foreclosure property that is on the verge of going into foreclosure because they have fallen behind on their mortgage payments. In general, a homeowner still has a chance to prevent foreclosure by making up any past-due mortgage payments, negotiating a mortgage modification, or selling their house.

Foreclosed Property

A property that has already been taken back by the bank because of missed mortgage payments is referred to as a foreclosure. Since the previous owner is no longer involved, these are frequently referred to as "bank-owned" properties.

foreclosure and for sale sign

What Are the Benefits and Drawbacks of Purchasing a Property in Financial Distress?

Should you buy a short sale home?

The fundamental advantage of all three types of properties is that they can provide excellent value for your money. The "cons" of every attribute, however, vary significantly in different ways, such as:

  • The house can be abruptly taken off the market before you can make a deal if pre-foreclosure homeowners unexpectedly find the money to make up missed payments.
  • While you are shopping, pre-foreclosure homes might also pass into bank ownership. That implies that you could have to restart the purchasing procedure from scratch or possibly give up.
  • Although the mortgage holder must authorize the sale and there are no guarantees, short sales are frequently quite simple operations. The bank always has the option to modify its decision, but often the minimum price for the sale is determined.
  • Homes in foreclosure are normally sold for cash, though they occasionally end up at auction. When there is a lot of competition, it might be frustrating. Furthermore, dealing with the bank's lengthy and laborious negotiations might be difficult when you're awaiting decisions.
  • Many foreclosed homes are offered "as-is," so prospective buyers aren't even permitted to take a thorough look inside before submitting an offer.

It's also important to keep in mind that other than these, you have to look at its physical aspect. You can generally bank on short-sale properties to be in decent condition, but you shouldn't. For instance, a homeowner who is unable to make their mortgage payments is also likely to be unable to make necessary repairs and maintenance.

Pre-foreclosure homes and foreclosures come with added risks, including the possibility that you, as the new owner, may be responsible for any unpaid taxes or liens on the property. That's a big risk, particularly if the home's previous owner was in serious financial trouble before it was abandoned or taken back by the bank. Before submitting an offer on a home that is held by a bank, you should conduct your research so that you are prepared.

So, should you buy a short sale home or is it now a bad idea?

The opposite. Simply put, it means that you must approach the process with the expectation that there may be issues and delays. When taking this path, patience is unquestionably a virtue that will pay off. Here are some suggestions to help make the procedure less intimidating overall:

  • Prepare your funds before beginning. You don't want to fall head over heels for a foreclosed home only to learn later that your lender won't lend you the money. You might need to look into more funding options.
  • When making an offer, you should have your finances in order and that mortgage pre-approval in hand because short sales can go quickly (as the seller is frequently desperate to get rid of their obligation).
  • Work with a seasoned real estate specialist. If you want to know if this kind of purchase will fulfill your demands, a professional agent can assist you. They may also assist you in ensuring that you are aware of any liens or other immediately apparent issues with a property, and they can foresee the kinds of concessions the bank might demand.

Purchasing a bank-owned or financially troubled property is a huge decision; however, working with a real estate expert who is familiar with the procedure, the necessary paperwork, and the potential for delays can help you obtain the result you deserve.

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8315 W. 10th Street
Indianapolis IN 46234

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