Don’t let the name fool you – short sale does not refer to how little time the process of buying a home will take; it refers to the homeowner selling the property for less than what he owes, which is called selling short. First-time homebuyers who are looking for a deal might get one buying a short sale, but they need to understand the possible pitfalls as well as the benefits.
You Can Get a Deal
Although the number of first-time homebuyers who purchased a short sale was down from a high of 54.1 percent in November 2009 to 39.7 percent in August 2011, a significant number of first-time homebuyers are purchasing short sales. The reason for the popularity is the buyers save about 27 percent on average when purchasing a short sale, according to the website Real Estate Economy Watch. Another type of property first-time homebuyers purchase is real estate owned, or REO, – property owned by the bank.
You Must Be Patient
Consider your situation to determine whether a short sale will be worth it for you. If you need to get out of your current housing quickly and plan to use the new house for that reason, a short sale is not for you. It could take six to nine months for the sale to go through, because a short sale is a more complicated real estate transaction than a non-distressed sale. With a short sale, the lender needs to approve the sale, and banks can be notoriously slow, according to Paul McDonough, a New Jersey Realtor. One way to help the situation would be to put a drop-dead date into your contract stating that the lender must move on the decision within a specified time frame or you will walk.
You Must Be Flexible
Be prepared to make general repairs to the interior and exterior of the house. If sellers could have afforded upkeep, they probably would not be in a short sale situation. Sellers will not make any repairs as a condition of the sale, either. They are selling the property as is. This might come into play if you are getting a Federal Housing Administration loan for first-time homebuyers, because the house must meet certain appraisal and property requirements to qualify.
First-Time Homebuyer Tips
Whatever type of home you are buying, you should take certain required steps, according to Sheyna Steiner of Bankrate.com. Check to see whether you have a good credit score. If you have paid all your bills on time and have lots of available credit, you probably have a high score. Be prepared to show your income and expenses to lenders. Lenders will usually want to see two recent pay stubs and your tax returns and bank statements for the last two years. Know how much of a mortgage you can afford, not what the lender says you can afford. Ideally, you will spend no more than 28 percent of your gross monthly income on housing costs, but this depends on what other expenses you have. And finally, gather enough money for your down payment.
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