Consumerism is part of the American Dream and a favorite national pastime. According to experts, consumer spending accounts for 70 percent of the national economy, and currently shopping for bargains is the norm. Within the real estate industry, courtesy of historically low mortgage rates and slashed home prices, homebuyers are scooping up major housing discounts via short sales.
What are Short Sales?
MortgageMarvel.com defines short sales as "The act of a borrower and a lender working together to sell a home below the loan amount due to avoid foreclosure. Short sales require the approval of the lender and the term 'short' reflects that the amount of the home price is less than the actual amount due to the lender." All the proceeds from a short sale will apply to the principal balance remaining on an outstanding mortgage.
Short sales have a history tracing back to Europe in the 1700, however at that time the transactions were mostly deemed illegal due to real estate speculative bubbles. Short sales started to gain popularity in America during the 1990s, and thanks to the country's real estate bubble bursting, activity in the short sale sector has increased dramatically.
Short sales have become an increasingly popular way for financially struggling homeowners to avoid losing their homes to foreclosure. Borrowers looking to unload their properties via short sales are required to working directly with their lenders, as the lien holder must approve transactions that may short them financially.
What to Expect from a Short Sale
Many buyers favor scoring real estate using a short sale, as huge price discounts are part of the temptation. However, both buyers and sellers participating in a short sale need to adjust their expectations, as despite the name, short sales can be very time consuming. Those interested in participating in a short sale should expect:
- Six Month Wait: All short sale transactions must be approved by the mortgage holder and for both buyers and sellers their decision making process can feel like an eternity. Mortgage lenders are legally able to ponder a short sale for six months and reject the offer anytime during that waiting period.
- Hurry Up and Wait: Banks will take their sweet time deciding on whether or not to accept a short sale bid, but once they do the process will move very quickly. Buyers will be in the position of needing to get their mortgage secured quickly.
- Pay More Than the Listing Price: Properties being sold, as a short sale will have low listing prices. Those price points are used to generate interest and can lead to competition in the form of a bidding war. Many times, the amount paid for a property is more expensive than the original price.
- Fixer Upper: Chances are a homeowner selling a home with a short sale is not going to invest money to fix the place up. Homebuyers need to plan accordingly.
The Future of Short Sales
Short sales are here to stay for the time being, thanks to the U.S. Governments' Home Affordable Foreclosure Alternatives (HAFA) program. The current administration has been instrumental in encouraging lenders to work with financially stressed homeowners as a way to curb the default trend sweeping the nation and encouraging lenders to accept short sale bids is just one behavior they are supporting. According to a recent statement by the Federal Housing Finance Agency (FHFA) Fannie Mae and Freddie Mac short sales activity has increased by 167 percent during the first half of 2010 as compared to numbers from the same time period in 2009.
Home shoppers considering bidding on a short sale property can benefit from MortgageMarvel.com. Mortgage Marvel is a mortgage industry leader that can provide you with mortgage rate information fast, so once a bank accepts your bid, you can finance the transaction quickly.