Buy home in pre-foreclosure vs short sale

When weighing the decision to buy a home in pre-foreclosure vs. a short sale, remember that both sales have risks and perks.

Do you know what the differences are if you buy a home in pre-foreclosure vs. short sale? Although both sales are pre-foreclosure sales, there is a difference.

Pre-foreclosure sales

If you buy a home in pre-foreclosure, you are typically buying from a homeowner who is 90 days or more behind on mortgage payments. The homeowner’s lender has sent a Notice of Sale (NOS) and the homeowner is selling to avoid foreclosure.

In some cases, homeowners will hire a real estate agent to advertise their pre-foreclosure sale. In other cases, you may find a NOS in county records or in the legal notices section of the local newspaper and contact the homeowner to suggest a pre-foreclosure sale. Rather than go to the homeowner’s door, send a postcard or letter inquiring about the possibility of a pre-foreclosure sale. Remember that this is a touchy situation for the homeowner who may be scrambling to come up with the money to make the delinquent mortgage payments. He or she will contact your or have a real estate agent contact you about a sale.

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Short sales

On the contrary, when you’re pondering how to buy a home in pre-foreclosure vs. a short sale, a short sale will typically be advertised. As a type of pre-foreclosure sale, a short sale occurs when the homeowner owes the mortgage lender more than the home is worth. The lender agrees to accept a deficiency payment from the sale – less than is owed on the mortgage. Both parties want to avoid foreclosure.

In the case of a short sale, you may be buying from the homeowner or through a real estate agent who specializes in short sales. The home may be at market value or below market value. It will certainly have a lower price than when the homeowner bought it. You can research the sale price history of a home in county records or on Zillow.com.

Pre-foreclosure vs. short sale: both have risks

When you are trying to decide whether to buy a home in pre-foreclosure vs. short sale, know that these two types of sales have similar risks. First, these sales require some patience: in both cases, the home is occupied so even if the sale goes quickly the homeowner may need additional time to relocate.

Second, if the homeowner cannot afford the mortgage payment, he or she may not be able to afford needed maintenance or repairs. You should pay for a home inspection before making an offer on a home in pre-foreclosure or a short sale. Additionally, you will want to research the title to make sure there are no liens that you may inherit when you buy the home.

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Your real savings

Finally, the sale price may not be a deep discount. In a pre-foreclosure sale, the homeowner has to pay the entire mortgage loan regardless of the sale price. So, if he or she doesn’t have the money to pay the difference, the sale price will be at least what is owed on the home. In a short sale, the mortgage lender is going to have a bottom figure they will accept for an offer. While the lender wants to avoid foreclosure, they won’t make a drastic discount to do so. Often a lender will respond to your offer with a counter offer, even if you offer a fair price. The only proven way to get a lender to drop a home’s sale price is to give documented evidence, like a home inspection, that shows needed repairs and what they will cost you.

When weighing the decision to buy in pre-foreclosure vs. short sale, remember that both sales have advantages and disadvantages – and they are both quite different than a foreclosure sale. To look at listings of homes in pre-foreclosure and foreclosure, enter a zip-code above.

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