5 common mistakes of short-sale buyers
- Ignoring property problems.
- Skipping the home inspection.
- Ignoring legal and insurance information.
- Not leaving enough time for closing.
- Falling for a bad home.
Know what you’re getting into before you purchase a short sale or foreclosure property, and be mindful of these five common mistakes.
1. Ignoring property problems
Some homeowners who face foreclosure become angry and take their frustration out on the property they’re about to lose.
Vacated houses in foreclosure may sit empty for months and sometimes years before they’re purchased. As a result, problems occur, like mold, leaks, filth, termites, squatters and thieves.
There are a few little-known loan programs, the FHA 203(k) and Fannie Mae HomeStyle, which offer solutions for homebuyers who plan to renovate.
2. Skipping the home inspection
Tag along when your home inspector shows up. You might be surprised what you can learn.
- Ask for repair estimates when an inspector records a problem, or do some research of your own later.
- You may want to utilize specialized inspectors to look for expensive problems such as mold, termites, and structural damage, especially if it’s a common problem in your area.
- Be sure to hire an inspector that’s highly rated. Ask for recommendations, or weigh online user reviews heavily. Just as with any other industry, there are great, marginal, and not so good inspectors.
- You are granted a certain window of time to inspect the home, known as an inspection period. Reducing an inspection period may give you leverage in a regular real estate situation when you’re placing a bid, but don’t skimp on or skip the inspection period when you’re about to purchase a foreclosed or short-sale home. Use this time to make an informed decision.
3. Ignoring legal and insurance information
A standard disclosure statement would indicate whether a house has had any unpermitted renovation or is in a flood plain. But bank-owned properties often sell as is, without any disclosure, so buyers need to do additional research on the home.
Check to make sure that all renovations have been permitted and approved. If not, and there is a problem, the city can cite you.
4. Not leaving enough time for closing
Short sale and foreclosure home buyers need to be aware that the sale won’t necessarily close as quickly as it would for a regular home purchase. The short seller’s lender must approve the foreclosure terms or short-sale price, which will be less than what the seller owes. Even so, banks may be slow to respond.
It’s not always possible or even desirable to get a home loan from the bank that has a mortgage on the short sale you’re buying. In fact, it’s best if you show the lender a preapproval letter that you obtained from your own lender within the last 30 days.
5. Falling for a bad home
Never simply assume you’re getting a great deal.
Ask yourself these common-sense questions:
- If you were to buy this property, could you afford to rent it out for as much as, or less than, your mortgage payment? Use the calculator on lending.vrmco.com to estimate your mortgage payment.
- If the home’s value drops 10-20 percent, will you still feel satisfied with your purchase?
- How much money will you need to spend on the property to make it livable?
As long as you fully understand how the foreclosure and short sale process works, nothing should stop you from getting a great deal and landing the house of your dreams. Just be sure to fully consider the home inspector’s advice and report before making your final decision.