Is Buying a Home From Short Sale Worth It?

Many people looking to buy their first home are having a hard time, as the housing market is recovering from the recession more rapidly than perhaps wages and cost-of-living are. That doesn’t mean people aren’t any less desperate to become homeowners, however, it just means they’re looking for alternative means to do so.

For instance, many people on the cusp of purchasing a house have become enamored with the idea of buying a short sale home; that is, a house on which the current owner owes more than the property is worth. These negative equity houses can often sell for well below market price because the lender to whom the money is owed is simply trying to make anything off the sell, rather than what they are owed. However, buying one of these homes can have some major drawbacks, so if you’re thinking this is a smart way to find a cheaper house, consider the following:

  1. Buying a house like this often takes a great deal longer than purchasing a home the traditional way. All kinds of steps have to be negotiated, and each step in the process can take a month or more. If you love the home, go for it – but if you need a new place in the next three months, it might not be the house for you.
  2. Being able to buy a short sale home usually requires a lot of cash up front. You’re more likely to get financing on a home like this if you can put 25-40% down, which is a crippling sum for most potential buyers even at a reduced price. But the lender wants to make sure that you won’t repeat the mistakes of the previous owner and default on your loans, so they have to play it safe. 

  3. Have more cash on hand, after that initial down payment. You’ll most likely have to pay outstanding bills, like the ones to the homeowner’s association or unpaid bills for home improvement. While these homes tend to be in better shape than foreclosures, their previous owners were in financial trouble, so buyers should expect some repairs to have been deferred.
  4. Finally, keep your eyes open for other, non-short sale homes. The cat is out of the bag on this one, and many buyers are looking at these properties, meaning they aren’t going at the fabulous rates they once were. You may find an easier and more fitting home ready for traditional purchase, and it could save you a lot of headache down the road.