Are you interested in breaking into the Canadian real estate market? Today, there are a number of distressed properties, such as foreclosures and short sales, available. If you have never considered purchasing one of these properties, now is the time to do it. The following article provides information on how to buy a property that is a short sale.
Let me start with a quick story about my own purchase.
Six months ago, I was driving through my hometown and ran across a cute starter home that had a for sale sign out front. I had been looking for a new home for a while without any luck. My agent and I were able to see the home a couple of days later. It was exactly what I was looking for. That afternoon, I sat down with my agent and wrote an offer.
Now, this wasn’t my first house. I had purchased and sold four homes before this one. However, this property had unexpected challenges that I had never experienced in the past. This home was considered a “short sale”, meaning the seller was facing a possible foreclosure. As a result, the offer price was less than the seller owed on his mortgage and the purchase would have to be approved by the bank holding the mortgage. (In this situation, the difference owed by the seller is usually erased.) Apparently, the bank had no desire to own their own home, so they quickly approved the purchase price and requested a 30 day closing. Although the closing took slightly longer, it was a pretty easy process.
While my purchase wasn’t all that challenging, I found out that this is usually not the case. In fact, in many parts of the country, lenders are inundated with short sale requests by homeowners and investors looking for a bargain. In these cases, it often takes up to 90 days or more for the bank to decide whether or not to accept the purchase offer. Despite these long delays, a buyer with a little bit of patience can find a great home in a short sale.
How to Buy a Short Sale Property
Now, let’s look at how a buyer can potentially find the perfect short sale. Bankrate.com has a long article about buying a short sale, but I have condensed it down to the major points you need to know.
- Compile a list of short sales.
I have found that the easiest way to do this is using an experienced real estate agent. Of course, you don’t necessarily have to do this if you have the time to frequently search the listings in your preferred area. If you choose not to use an agent, make sure you have a good real estate attorney to assist you if needed.
- Visit the short sale properties.
Look at everything from the floors to the roof, as well as the appliances, cabinets, deck, etc. to determine if the home requires work. If work is needed, try to get an idea of the potential repair costs to help you decide if the home really is a bargain.
- Do your research and shop around.
A real estate agent can help you look at comparable homes that have recently sold in the area to determine the property’s true market value.
- Know the type of financing you will need.
Be sure that you will qualify for a mortgage loan. If your offer is accepted, the seller’s lender may require that you close quickly on the property. It is a good idea to get preapproved for financing. Use the following tips to find the best home loan rates.
- Determine the mortgages and liens on the property.
Knowing what is owed on the property makes it easier to put together a reasonable offer. You can ask the seller or their agent for this information. While it may seem rude, they realize it is in their best interest to disclose this information. Be aware that the lenders usually will not even consider the idea of a short sale until the seller is at least 90 days behind on their mortgage.
You or your agent should make an appointment with someone who has the authority to make a decision about your offer. In most cases, a notarized letter will be required from the seller authorizing the lender to disclose information to you.
- Complete the short sale application, if one is required.
Several lenders have a specific application they require potential buyers to fill out.
- Gather your proposal, which should include:
1, The purchase and sale contract, signed by the seller and buyer.
2, A hardship letter from the seller explaining their financial situation. If applicable, supporting documents should be attached.
3, An appraisal or other statement of the property’s value.
4, A costs and liabilities statement that details any damage and/ or needed repairs. Short sales are only completed on an “as is” basis, so the buyer will be liable for any repairs once they have taken possession.
5, A settlement statement.
- Negotiate.What is a real estate deal with a series of negotiations?
- Finalize the deal. After signing all the paperwork shaking hands, grab the keys. They are now yours.
There is no denying that purchasing a short sale can be complicated, but it often has amazing rewards. Choose the home carefully, know exactly what you are getting into, and preferably, find an agent who is familiar with short sales to help guide you through the process. That’s it! Now, you know everything you need to know to purchase your own short sale.