There are very few active buyers in the real estate market these days -- but every one of them seems to be looking to buy a foreclosure or a short sale.Foreclosure is a fairly well understood process, but as "short sale" signs sprout like weeds, you may wonder what it's all about.When a lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.Can it work for you?Buying a home in a short sale can be a hassle, so why should you consider it? It boils down to the bottom line. You'll get the property for a substantial discount. Because the lender is eager to continue to get paid back the money it loaned out -- it may also offer favorable financing terms.Here are 10 important steps when considering a short sale:1. Identify potential short-salesLocate pre-foreclosures in your area. You can use an online database, search courthouse listings, legal ads or by using an experienced real estate agent as a buyer's agent.2. View the propertyGauge its condition and come up with a rough estimate of how much it's going to take to repair or renovate. If it needs work, many "normal" buyers won't consider it, which is good for you.3. Do your researchWhat is the property worth? What's the profit potential? If you're an investor or even a homeowner planning to live in the home a short time you'll want to profit from the deal. 4. Find all liens and mortgagesAsk the seller or his agent what liens are on the property, and which lender is the primary lien holder.5. Figure out the financingYou have to know how you're going to pay for the property. If you're a good credit risk, the existing lender may be willing to give you a loan. Because they already have a lot of your information in the short-sale paperwork, they may be able to expedite the loan application process. Once an agreement is worked out, it is common the lender will require closing in as few as 20 days. This is too late to start shopping for a mortgage.6. Contact the lenderYou or your agent should speak with the loss mitigation department (or perhaps the resource recovery department) rather than the collection or customer service department, which is only interested in recouping past due loan payments. You will first need to have the homeowner complete and sign (notarization is usually required) an authorization letter, which gives the lender permission to discuss the mortgage situation with you. 7. Complete the lender's short sale application, if they have oneMany lenders have an application specifically for a short sale request.8. Assemble the proposalThe proposal generally consists of a package of materials including the application and authorization letter plus: - The purchase and sale contract -- signed by you and the seller -- to buy the property for a specified price.- A hardship letter. It's important to remember a lender will not even discuss a short sale until the homeowner has fallen behind on payments -- usually 90 days.- A statement of the property's value. This can be an appraisal or a broker's price opinion.- Detail the costs and liabilities. You want to show the lender it would be much better off letting you take the property off its hands. - A settlement statement. This statement (which can be prepared by a closing agent or real estate lawyer) outlines the purchase price, the closing costs and any other costs or fees involved in the transfer of the property. 9. NegotiateIt's not uncommon for the lender to reject your offer or to come back with a counteroffer. As with any real estate transaction, you should figure out beforehand what your absolute highest limit is, and don't be afraid to walk away if the lender won't meet your figure.10. Seal the dealOnce you've reached an agreement that all three parties (you, the seller and the lender) are OK with, get everything in writing and officially recorded. Make sure the seller understands all of the terms of the deal. Next comes the closing and the property is yours.X...X...XMortgage rates went up this week because prices for fuel and food keep moving higher and higher.The benchmark 30-year fixed-rate mortgage rose 18 basis points, to 6.2 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The benchmark 15-year fixed-rate mortgage rose 17 basis points, to 5.8 percent. The benchmark 5/1 adjustable-rate mortgage rose 15 basis points, to 5.86 percent. The 30-year fixed jumbo rose 9 basis points, to 7.38 percent. For more stories visit scrippsnews.com
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