Are You Getting the Best Deal?
(Don’t miss this article-it could save you a lot of money and heartache.)
Getting the best deal means a lot of things. Unfortunately, some believe the lowest price equates with getting “The Best Deal” . Price is, of course, among the top factors considered when purchasing real estate. Let’s get a little perspective on the true meaning of a good deal and how to evaluate if you are really getting a best deal when trying to purchase a Short Sale or Foreclosed Property.
A Short Sale is briefly defined as a property that is offered below what is owed to a lender holding the mortgage. An offer has to be submitted to and approved by the lender. Short sales are fraught with challenges, paperwork issues, and often take a very long time to work out. Although some Short Sale properties can close more rapidly, the rule of thumb is they take much longer to process than other types of for sale properties. Sometimes, even after an offer is accepted, they don’t close.--Therefore a lot of wasted time and effort for the buyer.
Foreclosures are sometimes referred to as Real Estate Owned or REO for short. In these cases, the lender has foreclosed on the property and owns it. Most often, the owning authority maintains and pays the taxes while in foreclosure status. Often third party providers are hired for maintenance purposes. Many times, foreclosures have fallen into substantial disrepair.
Proof of Funds are usually requested when a potential buyer submits an offer on Short Sales and Foreclosures. The lender wants to know the buyer has the financial ability to carry through with the purchase. A pre-approved loan may be acceptable is some cases. Please do not confuse a pre-approved loan with a prequalification letter - Read more here: A Mortgage Prequalification Letter- Why it is Important and How to Get One
A PRE-APPROVED LOAN means your lender has already completed the loan application process and is awaiting the buyer to find a property for which to apply the loan. A PRE-QUALIFICATION LETTER (often called a pre-qual) is a quick credit check through a potential lender who will run a credit report and issue a letter stating: If you meet all the underwriting requirements at application time, you are eligible to loan up to a specified amount. Many real estate professionals, including us, require a prequalification letter to begin the real estate search phase.
Short sale and foreclosure properties are almost never turn-key real estate. In most instances substantial repair, renovation, updating and heartache is involved. These types of properties are best left for the investor who knows how to handle and can afford the cost and hassle.
The timeline and repair costs for investors can work out well. Buying low and selling high, the good old American way of commerce, can produce an excellent return on investment. Those who are successful usually have a team or experts at hand. If you are looking to buy on the cheap, need to move quickly, and are not well versed in the challenges presented by both short sales and foreclosures, we suggest you stay out of the process.