What are some of the pitfalls of a buyer purchasing a short sale?
A few pitfalls that I have encountered as a mortgage professional in this business was poor planning upfront by realtors and lenders. Often times, the bank that owns the home will set aside X amount of money to go towards the purchase of the property including agents commission and closing costs. If you are receiving any seller concession, make sure that the money designated by the bank covers the costs. I had a case where there was a difference of $8,000 and the buyer lost all of his closing cost help.
The other pitfall is the length of time that a short sale may take to close. Short sales often take longer due to the bank giving final approval on the short sale itself. This often times can put your rate lock in jeopardy. It may be wise to ask your mortgage broker to offer you the longest rate lock possible, often being 60 days. There could be a small fee associated with a longer lock term so dont surprised if a fee of .25-.5% is associated with the lock term. This may be worth it since you will have more peace of mind in the assurity of your rate lock.
Other than that, short sales can be a great way to get into a house with instant equity. Good Luck!!!
One of the pitfalls of entering into an agreement to purchase a short sale would be the potential for a very long time interval between making an offer & closing. Many sellers place a home on the market looking to sell the home for enough to pay off their mortgage(s) regardless of the home's value. Often the overpriced listing stagnates with no activity until the seller determines their best option would be to attempt to sell the home via a short sale, which requires that their lender(s) approve of the sale, & accept less than what they are owed. This process of lender review can be frustratingly long. In certain cases it can be months before you can have your offer accepted, & then, the lender may impose a short time frame to get to closing.
Buyers may wait a long time to get an answer from the short sale lender, only to find out that the lender wants much more than they were offered. It takes patience, & the ability to have a flexible time schedule in order to buy a short sale.
If the buyer is successful, they are often purchasing a home at a discount to the current market value.