Northern Virginia Short Sales have become more common place in today’s real estate market and in these economic conditions. Short sales will most certainly be part of the real estate landscape for years to come. This is the reason it is important for home buyers in Northern VA to understand the risks of buying a short sale in Northern VA. Buying a short sale is not for the faint of heart but can be a viable option for some Northern VA homebuyers. Currently an excellent way to get a home with instant equity in the Northern VA area is to purchase a short sale, the right way. Real estate investors have been purchasing short sales since 2007.

Short Sale Risk

The risk of purchasing a short sale comes from the 5 words in the Sale Contract and/or Addendum, “Subject to Third Party Approval”. This means the sale of a short sale property has to be approved by the home owners mortgage holder, or holders in the case of a second mortgage (the third party). This process can be a monumental task considering the short sale documentation and process required of the home owner by the mortgage holder to approve the short sale. This process can take an average of 3 to 4 months from the time a buyer makes an offer and the home owner accepts. Northern VA short sale buyers and home owners must be patient and wait for the mortgage holder’s response. The most important aspect to getting a short sale approved is the home owner’s inability to make the payment do to some type of documentable distress.

The risk is after months of waiting for the bank response, the short sale is declined. The home search begins again for the buyer and the home owners can keep making payments, deed in lieu or foreclose.

(Bankruptcy is an option but any and all legal advice must be discussed with an Attorney at Law)

The second scenario, that is less likely, is the mortgage holder approves the loan and 48 hours before settlement they will not approve the final HUD1. Within each short sale approval is the contingency the final HUD1, listing all the final disbursements of funds, must be approved by the mortgage holder. Since 2007 the short sales I and our team have sold the mortgage holder has never repealed the approval based on the final HUD 1. The clause is included in every short sale approval I have seen and buyers need to be aware of the possibility.

Money matches

Risk of Financial Loss in Short Sales

The financial loss that buyers pursuing a short sale can sustain depends on how long the short sale takes and where in the process the buyer cuts ties and run. The biggest loss is time and the opportunity to pursue other homes for sale on the market, and time is money. Buyers also risk money by losing a lock on an interest rate in the time it takes to get a decision back on a short sale. A rate increase from 5.0% to 5.25% is an additional $76.91 monthly payment, this translates to an additional $27,687.60 over thirty years on a $500,000 loan.

The other financial loss with short sales can occur if a buyer pays for application fees, appraisal, home inspection,radon inspection, termite inspection, or any other inspection that is paid for at the time of service. Should the short sale not be approved these items completed and paid for will not be returned. This risk can be avoided if these items are not completed until after the short sale approval is in hand, this contingency should be included in the contract, consult your Realtor. The risk still remains that these items are paid for and the short sale is revoked the day of settlement, but this is not a common occurrence.

If you would like to read about the benefits of buying a short sale read, Rewards of Buying a Short Sale in Northern VA.