Buying a home that is a short sale or a foreclosure may save you money. But it may also turn into an expensive mistake if you don’t shop carefully and get help from real estate professionals with experience negotiating these transactions. Here are some general tips about buying foreclosed properties or short sales.
1. Know What You’re Buying
Short sale. In a short sale, the owner of the property is trying to sell it at a price that is less than he or she owes on the mortgage. Before the transaction can close, the seller’s mortgage lender must agree to accept that amount, says Trulia. The difficulty is in the details. Remember all mortgage lenders have to agree on this new amount, so this may delay or stop the transaction, says Forbes. That means the negotiations can be time consuming — taking several months in some cases — and frustrating for a buyer who has little control over the process.
Foreclosure. In a foreclosure, the previous owner of the property has either given the keys back to the bank and abandoned the home, or the bank has taken back the property and forced the former owner to leave. In either case, the bank owns the property, says Zillow. Banks are often eager to find a qualified buyer and unload these properties, so the buyers often pay less than they would have if they had purchased a similar property in the same neighborhood that wasn’t in foreclosure, says HGTV.
2. Weigh the Pluses and Minuses
One good thing about a short sale is the presence of the owner who has a strong interest in selling the property for as much as possible. One potential downside is that short sales usually take a long time to close, says Realtor.com. It isn’t unusual for buyers to wait several months between signing the agreement of sale and going to the closing table.
Buying a foreclosure is usually simpler, but properties that have been through the foreclosure process may be in need of attention. Many of them may have sat vacant for months — even years — and could be damaged by weather and neglect, says Trulia.
Some foreclosures can be purchased at auction. If that is how you decide to buy one, be aware that you may have to bid and even commit to the final purchase without having an opportunity to have the property inspected or the title thoroughly researched, says HGTV.
3. Seek Expert Assistance
Whether you’re buying a short sale or a foreclosure, you can help protect yourself by working with knowledgeable title insurance and real estate professionals.
A real estate agent who has experience with either of these transactions can help you navigate the process.
A knowledgeable title insurance agent can help you avoid problems that may cost you down the road. Securing title insurance is especially important, says Zillow. Title insurance may help protect against problems with the title, including liens that weren’t uncovered in the initial search and errors in documentation.
4. Buy Lender’s and Owner’s Title Insurance Policies
There are two kinds of title insurance policies — lender’s and owner’s policies, says Zillow. Mortgage lenders usually require that you buy a lender’s title policy. Owner’s policies are optional, but they are typically recommended for properties that have been through foreclosure. These policies may protect you by paying for court costs and attorney’s fees if someone challenges your ownership or tries to collect on an unsatisfied lien arising from work done before you took ownership. If a claim is found to be valid, owner’s insurance may cover your actual loss — up to the face amount of the policy, says Zillow. If you’re looking for title insurance, it may be available from title insurance companies or attorneys, says Zillow.
5. Decide If You’re Ready to Own a Foreclosure or Short Sale
While some short sales and foreclosures are in great shape, others may be in need of extensive repair and remodeling, says Forbes. You may get a very good price on these properties, but make sure you consider all the factors before you decide to buy — including the renovation costs, says Trulia. Even the best deal on a home can’t protect you from buyer’s remorse.
With a little preparation and expert assistance, buying a home that is a foreclosure or short sale doesn’t have to be daunting.