How to Buy a Short Sale Home

A short sale home may sell for less than it's worth.

If a home has declined in value, the homeowner may end up owing more than the home is worth. If he then faces financial problems and can't afford his mortgage, he may come to an agreement with the mortgage lender to sell the house for less than the amount he still owes. If you are a home buyer, you may be able to get a good deal by buying a short sale home. However, buying a short sale home requires patience and expertise.

Instructions

1. Find a short sale home by searching an online database, going through the list of short sales at your local courthouse or hiring a real estate agent. CNN Money recommends that you contact the asset managers at banks to get information on short sale homes. You may also be able to get information about the amount of the outstanding loan and the home value from asset managers.

2. Visit the property with a contractor. Many short sale homes have deteriorated because of the homeowners' financial situation, so you may have to fix up the property to make it habitable.

3. Ask the seller about the liens on the property. It may have multiple liens from mortgage lenders, the tax authority and judgment creditors. You may have to negotiate the deal with all the mortgage lenders, making financial arrangements more complicated.

4. Arrange for financing. "Realtor" magazine reports that the seller usually prefers cash offers. If you can't afford to buy the property in cash, you must at least get a mortgage pre-approval from a lender to show that you have a secure source of financing.

5. Prepare an offer for the property and submit it to the seller. CNN Money recommends that you set your price at about 10 percent below the market value of the property. The seller's agent will pass on your offer to the mortgage lender for consideration. According to "Realtor" magazine, the lender will take about two months to approve a short sale deal. However, it may take longer it there are multiple liens on the property.

Tips & Warnings

• Hire a real estate agent with experience in short sale homes because the deal may involve complex processes. CNN Money recommends getting an agent who has conducted at least two short sale deals.

• If the lender has not allowed the seller to conduct a short sale, you may have to contact the lender, fill out a short sale application and submit a short sale proposal detailing the purchase price, the seller's financial situation and the property's estimated value.

• Negotiate the terms of the short sale contract to get a favorable deal. For example, you may request that the mortgage lender pays of all the closing costs and specify the maximum amount of deposit you are willing to make before the mortgage lender accepts your offer.

References

• "Realtor": Making an Offer on a Short Sale? What You Need to Know
• MSN Real Estate; The Short Sale Buying Guide for Today's Housing Market; Bobbi Dempsey
• CNN Money; 7 Tips for Buying Foreclosures; Les Christie; November 2009
• CNN Money; Snag a Great Deal on a Short Sale; Joe Light; March 2009