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why does a short sale take so long to close

September 23, 2013
in a short sale is a popular choice with some because you can get a really good deal on a property. But, there can be some if youre not familiar with the process. A short sale isnt usually short; it can take a lot longer than a normal home sale because a short sale involves a lot more legal factors and bank approvals than a regular sale. The good news is there are some new lender policy changes that can really save you time on the process. What Is a Short Sale? A short sale gets its name, not from being quick, but from the fact that the home is sold for less than (short of) whats owed on the home, and the seller isnt able to make up the difference at closing. This happens for several reasons, but usually its because the house was appraised at a lower value than whats owed on the home. The homeowner often seeks a short sale agreement with the bank that holds the mortgage in order to avoid foreclosure. Because the bank will lose money in a short sale, theres a lot of haggling to deal with. Because things arent already complicated enough, sometimes homes in short sale will have. So, youll have to deal with two lenders who are trying to lose as little money as possible. Two major factors in how efficiently a short sale is completed are the bank owning the loan and the listing agent. Because these transactions are so complicated, agents who dont have much experience with them are likely going to have a difficult time navigating the process. All of this isnt to say that you shouldnt purchase a home in short sale, but just be aware of what youre getting into.

If the listing agent is unfamiliar with the process, or the bank doesnt want to make a deal, youre in for a long ride. The carrot on this stick is that youre getting a home for significantly less than its worth. And, now, theres a light at the end of the tunnel. Typically, if youre trying to, you have to sign the purchase agreement with the seller, wait for the bank holding the existing mortgage on the home to approve the purchase agreement, and then you have to go to your lender and start your mortgage process. Not only does this process take a long time, but when the bank finally approves a short sale, it usually only gives a couple weeks to close the loan. If you miss that deadline, you have to start all over again. So, heres the good news. Recently, some lenders, including, have adopted a new program where the buyers lender can begin underwriting the loan as soon as the buyer has a signed purchase agreement from the seller before the bank gives its final approval. Adam Speck, a regional VP of mortgage banking for Quicken Loans, explains why this is such a great benefit: As were calling top real estate agents across the country, were finding that this new program is very well received by the real estate community as a whole. This makes the entire process of a short sale much less stressful, especially once we get bank approval, often allowing very little time to close the loan. If you use a lender with this type of underwriting policy, youll still have to wait for the bank to approve the sale, but your lender will have a huge head start on their end of the process.

This way, youll have a much better chance of meeting the banks deadline and acquiring your new home at a reduced price. The long and short of it is that buying a home in a short sale can save you a lot of money if you know how the process works. Make sure the professionals youre working with have a lot of experience, and use a lender whos going to give you the smoothest process possible. If youre interested in more info on this or similar topics, let us know! Question: I am thinking about buying a short sale home, but I ve heard the process can take a really long time. So I started researching this online. Then I came across an article that said Congress was taking measures to speed up the process, to reduce the number of people going into foreclosure. Is this true? How long does a short sale take in 2014, from a buyer s perspective? I d hate to get bogged down in a transaction that might take several months. The good news is that the short sale process doesn t take as long as it used to, on average. A variety of new rules and procedures have expedited the process. The bad news is that it s hard to predict how long the process might take, due the variables involved. If your real estate agent submits a complete offer with all of the necessary paperwork, you might get an approval within 30 60 days, or even sooner. In more complex scenarios, the process can take several months. So it might not be the best option for you if speed is a priority.

A short sale occurs when a homeowner sells a home for less than the amount owed on the mortgage loan. They are selling the house short of the outstanding balance, hence the term. In many cases, it is a strategy for avoiding foreclosure. But homeowners cannot do this on their own accord. They need their lender s permission, since the lender will be taking a loss on the deal. This is one of the reasons why a short sale takes longer than a regular transaction, generally speaking. In a traditional sale, the seller / homeowner does not need the lender s permission because they will pay off the balance in full. Short sales are also more complicated because multiple approvals can be required. There might be more than one lender involved. There may also be a private mortgage insurance (PMI) company that has a stake in the deal, and therefore some influence over the approval process. How Long Do Short Sales Take in 2014? So, how long does a short sale take in 2014? A few years ago, when the housing market was in shambles, the short sale process took much longer than it does today. Back then, the time frame between the buyer s offer and the lender s final approval averaged 3 4 months. But it doesn t take that long anymore, generally speaking. There are several reasons for this: Real estate agents are getting better at submitting short sale offers and packages. They ve had plenty of practice! Lenders are doing a better job processing them quickly. Lenders today do not have the tremendous backlogs they had during the housing bust.

They are not as swamped with short sale requests, offers, paperwork, etc. Last year, Fannie Mae and the Federal Housing Administration (FHA) implemented new procedures designed to streamline and expedite the short sale process, on certain homes. Some mortgage lenders are now allowing the buyer s loan to move forward into the underwriting process, before the bank gives a final approval on the short sale. There has also been a lot of training and standardization over the last few years, where short sales are concerned. So things have definitely improved. I ve heard of agents getting their buyers offers accepted in only two or three weeks, though this is likely a best-case scenario. If you ask 20 real estate agents how long a short sale takes in 2014, you ll get 20 different answers. Estimates vary widely. But here s the bottom line. If you submit a reasonable offer based on comparable sales in the area, and your package is put together properly, the short sale process might take 30 45 days. Here, I m talking about the time frame between the offer and the final approval. If there are multiple approving parties involved, and/or the lender is currently dealing with a backlog, then the process might take longer. Disclaimer: This article answers the question, How long does a short sale take in 2014? Real estate transaction times can vary from one buyer and property to the next. This is especially true for distressed home sales, due to the additional complexities. This article has been provided for educational purposes only and does not constitute financial advice.

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