Buying a Short Sale? Avoid These Errors

Since the deep recession periods of 2007, short sales have been a way for buyers to escape foreclosures and relieve themselves of weighty mortgage balances.

Even though, buying a short sale is an opportunity, it might also be a burden when you have to spend too much on repairs. Short sale, foreclosure or HUD home buyers must understand that many of these properties might be in poor condition since the owner who owed mortgage debt may not be able to afford the house’s upkeep, hence there may be major repairs needed.

For example if you bought a home for $20,000 less than its fair market value and you had to make repairs worth $30,000. You lost $10,000 on your purchase.

So here are the common errors to avoid when buying a short sale home;

1. The Obvious Issues
Don’t ignore the obvious issues like the termite damaged floor and the pipe leak. The price may be attractive and even though the neighborhood has good schools and fine houses, ignoring the obvious signs may cost you a lot.

2. Skipping the Home Inspection
Buyers should be involved in the home inspection. A considerable part of an inspector’s job is education. Buyers should therefore inquire about, problems, potential problems and how much it would cost to fix them. Never underestimate how much renovation costs.

3. Ignoring Legal & Insurance Information
Have all renewals been approved? Is the house on a floodplain? In a short sale, the current owners of the house may not be 100% percent open about the condition of the house.

4. Making Assumptions
A short sale typically can take longer than a traditional home sale transaction, and in some cases a good deal longer. Occasionally it will take a bank time to come to a decision; in many cases, bank employees have a lot more things to do and a short sale application might sit in their to-do box for a long while. Never assume that this will be a quick transaction.

5. Falling in Love
A lot of agents agree that the issue with a lot of home buyers is letting their emotions control their logic. When buying, you need to think like an investor. How much could you earn monthly if you rented the property? How much will it cost to rehabilitate the house? Many buyers love a home when they buy it, but their emotions change later after having put $ 40,000 in repairs. Carefully examine a house and make decisions logically.

Why Many Boomerang Buyers Are Coming Back Into the Housing Market

Cities that were hardest hit by foreclosure are going to see an upsurge in demand by boomerang buyers, cities like Phoenix, DC, Detroit, Miami and Las Vegas.

This is based on assessment of foreclosure rates, affordability and demographic data by RealtyTrac. A boomerang buyer is one of the seven million homeowners who lost their home to foreclosure during the recession.

Basically, it takes seven years for foreclosure to disappear from a credit score. Many of those who got hit by recession in 2008 and 2009 are getting their slate wiped clean and reentering the market. Millions of consumers’ credit report will no longer reflect past mortgage problems.

Between June 2016 and June 2017, 2.5 million foreclosures, short sales and bankruptcies will fall off credit reports, according to facts by Experian. Many of these boomerang buyers have had enough time to work on boosting their credit. So Experian’s research further adds that 68% of boomerang buyers have high or near prime credit scores, which will improve their odds of getting good rates on the mortgage.

However, comparing short sales between 2007 to 2010, it can be concluded that short sales make it easier to bounce back into the market. Experian’s research reveal that 29% of short sale sellers during the recession have reentered the market and secured a new mortgage compared with just 12% of foreclosed home owners.

“With millions of borrowers potentially returning to the housing market, the trends we are seeing are promising for the mortgage applicant and the lender,” said Michele Raneri, vice president of analysis and new business development at Experian, in a news release.

In the coming years, boomerang borrowers will be a critical segment of the real estate market.

While many of these borrowers have gone through a tough time, it is inspiriting to see them taking control of their finances with better credit scores and better credit management.

Credit scores for these boomerang borrowers have improved, Experian observed. Individuals who applied for a mortgage loan subsequent a foreclosure have an average VantageScore credit rating of 680, representing a 20.8% rise from when they went through the foreclosure. And the median credit score for short sellers has risen to 706, an increase of 16.5% from the time of the short sale.