Short Sale Closing Costs: What Buyers Should Know
Are short sale closing costs different than in a normal home sale transaction? Closing costs are one of many factors in a tricky real estate transaction.
Most people, at some point in their lives, know the meaning of hard financial times. For a homeowner, that might look like not being able to make mortgage payments for a period of time. Unexpected setbacks and misfortunes happen, whether that stems from a dramatic housing market downturn, getting laid off, or any other wrenches that life (or the economy) throws into your plans.
No homeowner wants to go through a foreclosure. If a homeowner falls behind on their mortgage payments, a short sale is one potential way of correcting course. It’s certainly not an ideal situation, but it can have fewer repercussions for the homeowner-turned-seller, and from a buyer’s perspective, it can be a great deal if you’re willing to wait for it.
That being said, the home purchase process is a lot more complicated and drawn out with a short sale because it all hinges on the oversight and approval of a third party: the mortgage lender. Short sales operate according to the lender’s approval, requirements, and timeline. These properties are typically sold as-is, without the option to negotiate repairs, and as the buyer, you’re unlikely to get the seller and their lender to agree to cover your closing costs.
Whether the lender agrees to pay some, all, or none of the closing costs depends on their bottom line and what you are bringing to the table as the buyer. If you’re interested in a short sale opportunity, get a better idea of what you’re in for and what closing costs you can get covered.
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Short sales 101: How does it work?
Let’s start with the basics: What even is a short sale?
A short sale happens when a homeowner owes more on a house than the house is currently worth … but they still need to sell the house. So in a short sale, the homeowner’s mortgage lender agrees to settle the mortgage loan for less than what the seller still owes on the house.
Sellers could owe more on the house than the home is worth due to decreases in home values, overextending the home’s equity, or other financial or economic hardships.
To be more specific, a homeowner could owe more at the time of sale than what the house is actually worth because there was a drop in housing market prices, or because the owner purchased at a high point in the housing market with an adjustable-rate mortgage (ARM), which raised the mortgage loan interest to an unaffordable amount.
The benefits of a short sale (for buyers)
There are some solid advantages to buying a short sale home, depending on your situation. For one, the buyer usually pays the true fair-market value of the home at that time and not an inflated price (which may have led to the short sale in the first place). Furthermore, the price could be listed below market value in an effort to attract offers, presenting a potentially great deal for buyers.
Other short sale benefits for buyers might include:
- The offer price will be locked in, even if there is a long approval process.
- The lender handling the short sale may also agree to finance the buyer, cutting out the mortgage lender search.
- Short sale homes are often in better condition than foreclosures because the owners are still living in and maintaining the home.
- There is less competition for short-sale homes because the homebuying process tends to be longer and more complex.
