Is a Short Sale Good for a First-Time Homebuyer?
By purchasing a home through a short sale -- a real estate transaction in which banks allow homeowners to sell their residences for less than what they owe on their mortgage loans -- first-time homebuyers might nab a home for fewer dollars. But short sales can be complicated transactions. First-time buyers will have to weigh whether the savings of a short sale outweigh the potential hassles that come with the sale.
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Lower Prices
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Sellers usually accept lower offers when they're selling their homes through a short sale. There's a reason for this: Their banks or mortgage lenders are letting them sell the house for less than what they owe on their mortgage loans. While the banks agree to take a loss on the sale, owners can list their homes for lower prices because they no longer have to sell their residences for at least as much as they owe on their home loans. This can be a true benefit for first-time buyers: They might be able to find a home that would cost more if its owner wasn't selling it through a short sale.
Smaller Down Payment
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Most mortgage lenders today require that buyers come up with down payments ranging from 10 percent to 20 percent of a home's final purchase price. For a house that sells for $200,000, that's a down payment of $20,000 to $40,000, a large amount of money for first-time home buyers -- who don't have the benefit of having sold an existing home before making a purchase -- to come up with. By buying a less expensively priced house through a short sale, first-time buyers will have to come up with a smaller down payment because they are often paying less for a house.
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The Hassles
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Buying a short sale, though, can be a time-consuming and frustrating process. When first-time buyers submit an offer in a short sale, the sellers have to present it to their mortgage lenders or banks. These financial institutions can either accept the offer or reject it. And banks don't always move quickly. They can take several months to respond to an offer. For first-time buyers who don't have much experience in negotiating the real estate business, this added stress of not knowing whether their offer is acceptable or not can make the buying process an overwhelming one.
Missed Opportunities
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First-time buyers who make an offer on a short sale and then have to wait to find out if that offer is acceptable to the bank or mortgage lender behind the deal might miss out on other housing opportunities. They might pass on making an offer on another home that is perfect for them, and is listed at a reasonable price, because they are waiting to see if a bank approves their short sale offer.
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