Monday, August 13, 2012
Buying a Short Sale Home
So, we are buying a short sale home. What is a short sale, you asked? Short sale means the owners owe more than the house is currently worth. The house we're buying sold for $350+ K back in 2005, now it's worth less than $200 K.
We are trying to buy this house to move my business here. My business started out in our dining room, and after a couple of years, it has grown enough to the point where I needed a warehouse. We found a warehouse not far from home for a great price but in the back of my mind, I know I'm building my landlord's equity.
My husband and I figured that we should just buy another house, use that for the business, and build our own equity. We did the math and our new mortgage will be just about my rent. It's also perfect timing since interest rates are at their all time low, there are short sale homes available, and my business is pretty low key and can operate out of a home. I mainly sell online so I don't need a store front.
We made an offer back in May and we waited patiently for the bank's approval (the bank that holds the mortgage of this house has to approve the sale for the price we offered.) The bank wants more than our offer and we said fine since what they're asking is comparable to the prices of recently sold homes in the area. Now, it's another waiting game for the official short sale approval to be issued and then we can proceed to escrow. Of course, the house has to pass inspection and all that good stuff, too.
It's not a done deal yet and a lot can go wrong from now to closing but the steps we've taken in buying a short sale home are:
1. Save up for a downpayment. We saved at least 20% for down payment plus 10% more for closing costs, and a little extra to show the bank our account won't be totally depleted after the purchase.
2. Get pre-approved for a loan. No real estate agent will take you seriously if you're not pre-approved.
3. Find a reputable real estate agent. Ours is the same agent we used when we bought our home.
4. Find a home within your budget. Just because you were pre-approved for 500K doesn't mean you need to buy a 500K home. Figure out how much mortgage you'll be comfortable paying each month and go with that.
5. Be patient. After you make an offer to purchase a home, prepare for a long wait. Banks are running slow and have huge back logs and it can take months before you and the seller get a short sale approval.
6. Know your market; know when and when not to counter. Your real estate agent can help you with this but be reasonable with your offer and counter offers. Each time you counter, it can delay the process even longer which is fine if you have the time.
In our case, we don't. We want to close by September which will give us time to clear out the warehouse before our lease is up. Besides, the bank's offer is pretty reasonable so we're accepting it with no counter offer. Also, we know that there's not much inventory of short sale homes left in our area. If we back out on this, I really don't think we'll find anything better or cheaper.
7. Find a reputable home inspector with attention to detail. This is where we are right now. The house we are buying is an older home so we know it won't be perfect. But, we want to know what we're getting into before we sign the dotted lines.
I'll update more as we move along the process and wish us luck!