If you are looking to buy a home at a significant reduction in price, you might have heard about pursuing a short sale. A short sale can occur when a homeowner can no longer pay the mortgage and wants to sell the property for less than the amount currently owed on the loan. This tactic has the potential to save you money, but it also has its risks. Here are few you should look out for:
Time — The short-sale process generally takes longer than the regular closing process. The seller’s mortgage lender needs to approve the sale, which typically takes about two months. If there are other liens on the house (such as a second mortgage or home-equity line of credit), those lenders must approve it as well. Sometimes final approval can take six months or more.
Deal falls through — Sometimes the lender’s approval might come with conditions that the seller is unable or unwilling to meet, and they will back out of the deal, even after months of time already invested.
Extra costs — Lenders rarely agree to pay for extras that a seller would typically take care of (such as inspections and repairs), so your closing costs could be higher.
Deferred maintenance — Cash-strapped sellers may have let maintenance and repairs go by the wayside, resulting in a lot of fixing-up that the buyer would be responsible for.