About Short Sales

Are you thinking of buying a home and wondered why so many people have told you to steer clear of short-sales? Well, there are a number of reasons why you could have been told this by a friend or co-worker, but here are the main ones: all sales and terms need bank approval in addition to the sellers approval, the process is long and tiresome, banks are ill-prepared for the short-sales they are dealing with, and you never know if the bank will approve your offer.

1. All sales need bank approval: first, you have beat out any other offers on the table and get the seller to sign and accept your offer. But that is just the first step. The price, escrow length, closing costs and all other terms of the offer must be approved by the bank. There are many ways to structure an offer to make it appealing to a bank ” your Realtor should advise you on this.

2. The bank takes a long time: Short-sales range from 2-6 months to get an approval. The problem with this is that many buyers that are actively looking for a home want to be secure that they have a home and they want it now. While they are waiting for a short-sale to get approved, it is quite common for them to find another property that is not a short-sale and purchase it. This causes issues for the seller and the bank when one buyer drops out and they need to find another, which usually further increases the sale process.

3. Banks are ill-prepared: very few banks prepared for the onslaught of short-sales that have been sent their way. If they saw it coming, they probably wouldnt have written bad loans They are testing out new systems, hiring & training new personnel and sorely understaffed in many cases. When you submit a perfect short-sale package with an offer, you still have a line to wait in for months in some cases before they work on your file.

4. The sale may not get approved: even after waiting for months, resubmitting paperwork already sent in, negotiating, etc., the deal may not get approved. With this uncertainty, it is no surprise that some buyers move on to other properties that are a sure thing. Can you imagine waiting 5 months for your deal to get approved, only to have the home get foreclosed on and go back to the bank?

All in all, it is obvious why the short-sales are something to be weary of. With a lot of inexperienced people on all sides of the transaction, it takes a long time to get an answer and sometimes even that doesnt happen. The system is broken, but without the money and manpower to fix it, Im quite sure well be struggling through these for at least another year before the banks get their act together.

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When buying a home, there are two stages in the home loan approval process.Stage 1 starts when a homebuyer submits a mortgage application to his loan officer for a pre-approval.

A pre-approval is a “walk-through” mortgage approval that says — at a given purchase price and downpayment amount — the home loan application will very likely be approved.

This preliminary approval becomes obsolete once the buyer signs a purchase agreement. Stage 1 is now over because the buyer must now secure the actual loan from an “underwriter” and not the loan officer.

It is the job of the “underwriter” to make sure that the buyer can meet the lending criteria of the banking institution. He does this by reviewing the buyer’s credit, assets, income, job history and other factors. This is Stage 2.

If the loan officer did his job in Stage 1, Stage 2 is just a formality. And most times, it all goes according to plan. Occasionally, though, a homebuyer sabotages his own mortgage approval by inadvertently changing his “risk profile”. It doesn’t happen on purpose, of course — it just happens.

During the mortgage approval process, the buyer must not do anything that will increase his loan risk during the time between Stages 1 &2. Risk needs to remain consistent. The following are 6 things of the “Honey Don’t” list for this interim period:

1. Don’t quit your job, change careers, or accept a “commission only” position. 2. Don ‘t miss a payment to a creditor 3. Don ‘t buy a new car or increase any vehicle payments 4. Don’t accept cash gifts without talking to your loan officer(there are gift rules) 5. Don ‘t open a new credit card no matter how great a deal 6. Don’t transfer large amounts of cash in/out of bank accounts

There may be some other “don’ts” but this is a good starter list. It may not be possible to avoid some errors. Talk to your loan officer if you have to break a “rule.” You need to have professional guidance during this process because There are a lot of “snafus” possible during the process.