Foreclosure and Short Sale Myths Exposed
Foreclosure and short sales can happen to anyone and anywhere. In a world full of opinions, there are quite a few myths surrounding this topic.
Here are some of the more common myths about foreclosure and short sales to keep both sellers and buyers better informed.
Myth: Foreclosures and short sales only happen to people who consistently make poor financial decisions.
- While yes some foreclosures or short sales will happen to people who don’t make smart financial decisions, they can also happen to responsible people who do pay their bills regularly.
- Extreme circumstances such as a sudden job loss or accident that prevents the homeowner from making their mortgage payment are just a few reasons why a normally good paying homeowner will fail to pay their mortgage.
- Foreclosures and short sales can happen in any city and in any neighborhood regardless of how nice the homes are.
Myth: Foreclosure or short sale homes are usually in bad condition and will need a lot of repair work.
Going back to our discussion above, not all foreclosures or short sales are from bad situations with negligent owners. These homes can be in very good condition with only the normal cosmetic fix-ups required. That being said, there will be some foreclosures that need a great deal of work. As a home buyer, look into these type of situations with an open mind and weigh the pros and cons.
Myth: Foreclosures or short sales are the best way to get a good deal on a home.
These properties can be discounted below market value but not normally by large amounts. The other thing to remember is that when working with lenders who own these properties due to foreclosure, it will be rare for them to offer any discounts of closing costs or repair credits to the home purchase.
Myth: Foreclosures and short sales will make it difficult for a homeowner to get a new mortgage.
Yes, there is a period of time after a foreclosure or short sale that a homeowner must wait to purchase a new home. It is not as long as you may think. The 2016 FHA guidelines say that if you have foreclosed or issued a short sale on your home, you only have to wait 3 years from the date of the transaction to apply for a new home loan.
This waiting period is a good time to re-establish the required credit needed to get a new loan and to get your financial plans underway.
Myth: Lenders actively pursue foreclosures.
With foreclosures, lenders often take a bigger loss than if they agreed upon a short sale. There is also a great deal of paperwork and can drag on for long periods of time. In many situations, lenders will want to work with homeowners all they can to prevent foreclosures from occurring at all.
Myth: In order to get a short sale, a homeowner must have already missed mortgage payments.
In some cases banks or lenders will approve a short sale for a homeowner if they haven’t missed mortgage payments. The homeowner would have to prove that they are in a financially stressful situation that would affect their ability to make payments.
Myth: Short sales and foreclosures are something you can handle on your own.
Whether you are a seller or buyer, finding a reputable realtor fully experienced in short sales and foreclosures is very important. Many realtors specialize in these situations and can provide references. It is best to go in with as much knowledge as you can!
Additional Real Estate Advice
- How to Boost Your Credit Score Prior to Getting a Mortgage – Paul Sian
- 10 FHA Guidelines Every Home Buyer Should Know – Luke Skar (Inlanta Mortgage-Madison)
- Buying Foreclosures-Facts & Fiction – Greg Hancock
- Homebuyer’s Guide to Buying a Short Sale – Marcia Stewart
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