What is a Short Sale?

short sale paperwork

Real Estate Short Sale

We often hear from home buyers that think a short sale is a great way to get a good deal on a New Orleans home. We’re here to give you some details on what this kind of home purchase can entail.

What’s a short sale?

A short sale is when a homeowner wants to sell their property for less than is owed to the mortgage company. This requires the lender to accept a payoff that’s “short” of the mortgage balance.

For example:

• Owner owes $250,000 on their home

• Market value is $200,000

• In order to sell, the bank would need to accept $200k as the mortgage payoff

• The bank is “short” $50,000 on what’s owed

The first thing a buyer should know is that the lender is not obligated to approve a short sale. After all, they are being asked to take a loss on the loan. Only if the lender agrees to accept less than the amount owed is a sale even possible.

How long does short sale approval take?

The joke among real estate agents is that a short sale is anything but short. While their procedures have been streamlined over the last few years, it can still take some banks months to approve a short sale. That’s fine for buyer of a vacation home or a second home. But if you’re relocating to New Orleans and need a place for the moving van to deliver your furniture, it’s probably not the best choice for you.

What are some potential pitfalls?

Property conditions

If an owner can’t afford to make the monthly payments, they more than likely are also not performing the maintenance needed to keep a house in good condition. Don’t skip the inspections.

Market conditions

If the value of a home is less than what’s owed, is it because of a declining market? Talk to your agent about trends in neighborhood pricing before you buy.

Hidden costs

Because the lender wants to get every possible penny put towards paying down the mortgage, they may not approve a contract that includes closing cost assistance. Be aware that if you need this type of assistance to buy a home, a short sale may not be your best bet.

 

Need some guidance buying or selling your New Orleans home?
Call us today at 504-327-5303.
 

2 Responses to “What is a Short Sale?”

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  1. Trinice Dyer says:

    I brought my first home 15 years ago moving forward we’ve all out grown the house and now about to purchase my second home is there any programs out there that would help me with a down payment.

    • Lisa says:

      None that I’m aware of. All of the down payment programs I know about are for first time buyers. If you have enough equity in your existing home, it can be used as a your down payment. If you need assistance in finding the value of your home, or selling your current place and finding a new one, we’re happy to help.

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