Veterans’ Guide to Buying a Home in Short Sale
Many viable properties become bank-owned when homes are surrendered or foreclosed upon. Also, financially-distressed homeowners who are struggling to pay their mortgage and/or are “underwater” – meaning, they owe more on their mortgage than their home is worth – need a way to sell their property and it comes time.
A short sale is a way these properties get transferred to new owners. Often, the new owners get an unbelievable deal. More often, potential homeowners get tripped up in the short sale process and waste time and money chasing their dream.
Here’s a guide to the short sale process taking into consideration the financing opportunities available to veterans.
What is a Short Sale?
A short sale is a sale of real property for less than the total amount in liens. Simply put, the property sells “short” of its encumbrances.
Why Would I Buy a House at Short Sale?
Often, distressed properties become available at the short sale that would otherwise be too expensive for the buyer pool attracted by the short sale price. There are some deals to be had, certainly.
How Do I Buy a House at Short Sale?
First, you have to identify potential short sales. This can be done easily by contacting a local realtor, identifying the neighborhood or school district you wish to purchase in, and establishing the size and type of property you want (single-family? How many beds/bath? Lot size?).
Next, tour potential properties with your realtor. Take notes. Compare and contrast the available properties that meet your parameters.
Then, do some research. All liens and mortgages on real property are a matter of public record, so you should look them up. Look up the tax history and whether there are any boundary disputes, easements, or underground oil tanks on the property.
Once you’ve decided which property you want to put a bid (or bids) on, the next steps are to secure financing and make an offer to the lender who owns the property.
Financing a Short Sale for Veterans and Active Duty Military
Veterans are eligible for VA home loans, which require no initial down payment, offer favorable interest rates, and are easy to qualify for. VA loans are issued by private lenders and guaranteed by the U.S. Department of Veteran Affairs (the VA). For this reason, those holding VA home loans are not required to take out private mortgage insurance.
The disadvantage of a VA loan is that there are guidelines and requirements a property must meet to be eligible for VA loan financing. A VA appraisal must be done to see if the property meets the “Minimum Property Requirements,” or MPRs, which include:
- All mechanical systems such as heat, electric, and plumbing, must be safe and usable;
- The roof must be in good repair;
- Crawl spaces and basements must be dry;
- No termites, dry rot, or fungus;
- No lead paint.
Your real estate agent should be able to help you find homes that meet these requirements and steer you away from those that do not.
The Downside of Short Sales
Slow Response from Lender: Short sale negotiations between a potential buyer and a lender can be protracted and negotiations often fail and the deal falls through.
Condition of Short Sale Property: Short sale properties are sold “as-is” and many do not meet the requirements for a VA loan. A buyer making repairs to a home prior to purchase in order to secure VA approval takes the risk that the purchase falls through.
Mortgage Interest Rate Changes: Even if the property meets VA home loan standards, a lender may take 60 days or more to respond to a buyer’s offer, during which time mortgage interest rates may go up, or down.
Is a Short Sale Right for Me?
If you are a veteran looking to buy a house and are willing to tolerate a long negotiation process and the risk that your offer will not be accepted, that the deal may fall through, or that interest rates may rise while you wait for the lender’s decision, you can take advantage of the steep discount a short sale can offer. If you are risk-averse or otherwise cannot wait to purchase a home, a short sale is probably not for you.
About the Author
Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with busy Philadelphia bankruptcy attorney David M. Offen, Esq.