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.
