Mortgage calculations and other considerations for buying a home in a short sale

With millions of homeowners underwater on their mortgages, today's housing market offers plenty of opportunities to buy property in short sales.

A short sale is an alternative to foreclosure for homeowners who need to sell but owe more than their homes are worth. In a short sale, the homeowner's mortgage lender agrees to accept a sale price for less than what is owed and forgive the difference. Although this often lets you buy a nice home at a bargain, the process can be tricky and, contrary to its name, lengthy. Here are four things you should have if you're thinking about buying property in a short sale:

1. Plenty of time

Normally you just have to get the homeowner to accept your purchase offer. But in this case, you also have to get the homeowner's lender to accept your offer, which can take months.

2. Mortgage prequalification

You have a better shot at getting your offer accepted by the homeowner's lender if you're preapproved for a mortgage, have a big down payment, and are flexible about when you can close the deal, says the National Association of Realtors. A short sale isn't the best situation if you have any contingencies, such as needing to sell your home before closing the deal.

3. Expert advice

Work with a real estate agent, attorney and title expert with experience in short sales. A real estate agent helps you determine a fair price to offer for the home. A good attorney steers you through the challenging process, and a title officer identifies the liens attached to the property.

4. The right property

Every lienholder must approve the transaction, so the more liens against the home, the tougher the process. A property with first and second mortgages, as well as homeowners association lien, for instance, will be more difficult to buy in a short sale than a home with a single mortgage.

As with any purchase, use mortgage calculators as you proceed. The prequalification calculator lets you see how much you can afford to buy, based on annual income, debt and other factors. The loan comparison calculator lets you compare mortgage quotes from competing lenders side by side.

Posted By :

Kay Maxwell is a freelance writer who specializes in mortgage and finance topics.

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