Is Buying A Short Sale Property a Good Idea?

Short sale sounds like a good deal. Yes, it can be. However, if deep inside you think it is too good to be true, then it is. There are downsides to buying a property cheaper than its outstanding mortgage balance.

To make sure that this move is a great investment you must first learn the basics that you need to know to benefit most from this idea.

In this guide, you’ll learn:

• What a short sale is
   
• How short sales help both sellers and buyers
   
• When short sales are approved
   
• What the process looks like
   
• Things to keep in mind before you decide
   

Let’s break it all down in a way that’s easy to understand.

 

What Is a Short Sale?

A short sale occurs when the homeowner can no longer pay the remaining mortgage balance and wants to sell the house. They still owe the bank or lender money in which the mortgage is greater than the home is worth. They ask permission from the lender or bank if they can sell it lower than the amount owed in the loan.

Here’s an example:

• You owe the bank $200,000 for your house.
   
• But the house is now worth only $150,000.
   
• You can’t pay the difference, and you can’t afford your monthly payments anymore.
   
• You ask the bank, “Can I sell it for $150,000 and forgive the rest?”
   
• If the bank says yes, that’s a short sale.
   

The bank takes a loss, but it's often a better option for them than going through foreclosure.

 

Who Can Benefit from a Short Sale?

You might be surprised to learn that a short sale can help everyone involved—the seller, the buyer, and even the bank.

1. Sellers Benefit

A homeowner can benefit from this greatly as mentioned below:

• Avoid foreclosure (which can hurt your credit more)
   
• Move on without having to pay back the entire loan
   
• Feel better emotionally by taking control of the situation
   

Some banks forgive the remaining loan balance, meaning you won’t owe anything else after the sale.

2. Buyers Benefit

Buyers can get a great price on a home through a short sale. These homes often sell for less than similar homes in the area. While short sales can take longer to close, the savings might be worth it.

3. Banks Benefit

Banks lose money when a home goes through foreclosure. It’s expensive and time-consuming. A short sale is usually faster and cheaper for the bank. That’s why many lenders now prefer this option.

So, a short sale can really be a win-win-win!

 

How Does a Short Sale Work?

Let’s walk through an example so you can see how the process works.

Imagine this:

• You bought your home a few years ago for $250,000.
   
• Due to job loss, you’re falling behind on your payments.
   
• The housing market dropped, and now your home is worth $180,000.
   
• You talk to the bank and explain that you can’t pay anymore.
   
• You find a buyer willing to pay $180,000.
   
• The bank reviews the offer and agrees to the sale.
   

The buyer pays $180,000, and you are released from the mortgage—even though you still owed more.

Sounds simple? It can be, but there are a few steps and rules involved.

 

When Will Banks Approve a Short Sale?

Not all banks say yes to short sales. They will usually approve one if certain conditions are met.

Banks may say yes if:

• The seller has a hardship (such as job loss, divorce, illness, or bankruptcy)
   
• The seller owes more than the home is worth
   
• The mortgage is behind on payments or close to default
   
• The seller has no savings or valuable assets to help cover the loan
   

Every bank is different, so it’s important for the homeowner to talk to the lender directly.

A bank might also require proof like:

• Pay stubs
   
• Tax returns
   
• Bank statements
   
• A hardship letter explaining why the seller can’t pay
   

 

What If You’re the Buyer?

If you’re a buyer, short sales can be a great way to save money on a home. But there are a few things to keep in mind:

1. Short Sales Take Time

It’s called a “short sale,” but the process is not short! It can take weeks or even months for the bank to review the deal.

2. You Might Need to Be Flexible

Banks don’t like to fix things before selling. So you might need to buy the house as-is—meaning you take it in its current condition, even if repairs are needed.

3. You Still Need an Inspection

Even if the house looks okay, always get a home inspection. It will help you find out if there are problems with the roof, plumbing, or foundation.

 

How Has the Short Sale Process Changed?

In the past, short sales were rare and confusing. But things have changed. Many banks now:

• Have special departments that handle short sales
   
• Make decisions faster
   
• Use online tools to review documents
   
• Are more open to helping homeowners avoid foreclosure
   

Because of these changes, more short sales are being approved—and more buyers are looking at them as a smart option.

 

Should You Consider a Short Sale?

That depends on your situation.

If You’re a Seller:

• Are you struggling to make your mortgage payments?
   
• Do you owe more than your home is worth?
   
• Have you talked to your bank about options?
   

If you answered yes, a short sale could be a way to avoid foreclosure and move forward.

If You’re a Buyer:

• Are you okay with waiting longer to close?
   
• Are you looking for a better deal on a home?
   
• Are you working with an agent who understands short sales?
   

If so, a short sale might help you find the perfect home at a price you can afford.

 

Jump On It, But Prepare To Wait!

A short sale is indeed a very good option, especially if you are investing in real estate, because there are chances as well that the repairs could be minimal because the house is still in very good shape. It just so happens that an untimely situation hit the homeowner, and they need to sell the house.

Get right into it, but prepare to wait for a long time because again, the process is not short!

If you’re thinking about buying or selling a short sale home, make sure to:

• Talk to a real estate agent who knows the process
   
• Be patient—it can take time
   
• Get all the facts from your lender or bank
   

And remember: you don’t have to go through it alone. A good team of real estate and financial experts can guide you every step of the way.