Short Sales and Foreclosures

It happens more often than we would like. A homeowner starts off making payments on their house with the best of intentions. But over time, they find out that they can no longer keep up with their mortgage.

When homeowners are unable to pay their mortgage, they can end up going through a short sale or a foreclosure.

What exactly is a short sale and a foreclosure and how do they differ from one another? Read on to find out.

Short Sales vs. Foreclosures

Short sales and foreclosures are last-resort options for homeowners that can no longer afford to pay their mortgages. A short sale is a bank approved sale while a foreclosure is the bank repossessing the collateral of their loan (the house). Here are some differences between them.

Process: Short sales are when lenders allow homeowners to sell their houses for less than the amount owed on the house. Foreclosures are when the lender repossesses the house.

Timing: A short sale is much longer than a foreclosure. The process can last up to a year. Foreclosures are faster because the lender is anxious to recoup the money they are owed.

Credit Damage: Short sales and foreclosures will damage your credit but a short sale will do a lot less damage than a foreclosure will. If you went through a short sale, it is likely you will be able to turn around and buy another home, although getting a second mortgage can be difficult.

Foreclosure, on the other hand, will stay on your record seven years and it will be five years before you are able to buy another house.

Should I Buy a Home That is in Foreclosure or Being Sold in a Short Sale?

Buyers who buy houses in a foreclosure or short sale will be getting quite a bargain, but these options could come with a headache as well.

In a short sale in particular, the main setback is the amount of time a buyer will have to wait until the sale actually goes through.

The sales can take 3-4 months or more. This is because the lenders won’t approve the sale unless sellers agree to pay for things like wire transfers, repairs and closing costs.

Because the bank is stuck with the bill, it will try to negotiate with the buyer to get them to absorb some of these expenses.

Foreclosures come with a faster and easier selling process. However, buyers will need to buy the homes in cash. They will not be able to get a loan so they can pay for the house over time. They will need to do a “refinance” after the purchase.

Also, when buying a foreclosed house, buyers agree to buy in ‘as-is’ condition. The home is not inspected for damage and if there is damage existing in the home it will be the owner’s responsibility to repair it.

Short sales and foreclosures are not pleasant for homeowners but they do happen. On the bright side, they provide a way for buyers to get great deals on their homes.

What Lender is Right for Me?

What Type of Mortgage Lender is Right for Me?

If you are thinking of buying a home, one of the most important steps you will take is finding the right lender. Before you go comparing rates and reputations, you should consider that there are different types of mortgage lenders available. This article will review the different types of mortgage lenders so you can find one that is right for you.

Banks and Mortgage Bankers

Banks are the first place most homeowners will turn to when they need a loan. Banks get their money from their own investors and customers and they can offer different types of mortgage loans to their borrowers. Many people won’t do business with any other type of lender.

Credit Unions

Credit unions are similar to banks but they are owned by account holders, also known as members. Members are required to sign up for membership with the credit union. Credit unions offer members checking, savings and retirement accounts and they provide mortgage loans as well.

Mortgage Lenders

Mortgage lenders are similar to a bank but they originate and fund their own loans. Unlike banks and credit unions, they exist solely to fund loans for real estate purposes. They get their money from banks or investors.

Another difference between lenders and banks, mortgage lenders do their own underwriting, processing and closing in house. Once the process is completed, they sell the loan to a bank or servicing company and it is up to that company or institution to collect the payments.

Mortgage Broker

A mortgage broker works as the middleman between a homeowner and a bank. They do not lend the money directly. They have access to many loan programs and lenders and take a commission when connecting lender to borrower.

If you’re credit isn’t great, a mortgage broker may be able to help you find a loan that isn’t being offered by a bank, credit union or even a lender. For this reason, mortgage brokers are ideal for those who don’t have the best financial histories.

Which Lender is Best for Me?

There is no right answer to this question. The ideal lender varies from borrower to borrower and depends on their individual situations. However, here are some things you will want to consider.

If Time is a Factor: A lender that does loans in-house may be the best option.

If Money is a Factor: Credit unions tend to offer lower closing costs and interest rates to their members.

Do You Need a Government Backed Loan: Government backed loans are loans subsidized by the government. They protect lenders against defaults on payments making it easier for lenders to offer buyers lower interest rates. Lenders and brokers are more likely to offer government backed loans as opposed to banks and credit unions.

Bad Credit: If you have bad credit or a high debt to income ratio, lenders or brokers will be more flexible than banks and credit unions.

Convenience: If you already have an account with a bank or credit union, you may choose to get a loan with them for the convenience of having all your accounts in one place.

Finding the right lender starts with determining the type of lender that is right for you. While your personal circumstances will be a factor, costs and interest rates will also come into play. Good luck finding a lender that provides you with the best service possible.