I felt this was a timely question to answer (more so a year ago). I will tell you the big differences between Short Sales and REO properties. Also, if you are in this situation, or are looking to buy a short sale or REO property, follow the link posted below.
A Short Sale is basically a pre-foreclosure stage. Once the homeowner realizes they cannot support their monthly payments, they attempt to sell it on the market using a real estate agent at current market value. Note: the current market value of their home is lower than their mortgage, so their “upside down” on their mortgage. The process is complicated but it has some benefits:
- A Short sale is usually less damaging than a foreclosure on your credit. (Foreclosures stay on your credit for 7 years, making it very hard to purchase a home or obtain another loan.
- There are no deficiency judgments on a short sale. A deficiency judgment is when the bank tries to make up its losses after you foreclose on your house, like collections agency would on unpaid bills.
- The bank realizes that some money is better than no money (unlike with a foreclosure).
- From the buyers’ perspective, buying a short sale, while it may take 6 months, is worth it when you can buy a house that is generally worth more in the long run.
And Short Sales have some negatives too:
- Short sales are a notoriously lengthy process. Some short sales can take as little as a month, but can take as long as 11 months!
- After a buyer makes an offer, the bank may not accept the offer, lengthening the buying process.
An REO property stands for Real Estate Owned. It’s a property that has already been through foreclosure and has failed to sell at a foreclosure auction. The bank now owns it and allows a real estate agent to list their house. The bank usually cleans the house of any debris, which is different from a foreclosure, which may have all of the previous owner’s possessions that were left. Also, REO’s typically take a couple of weeks to close the transaction, which is far better than waiting for a bank to approve a short sale.
If you need to sell your house, but are afraid you may owe more than the house is worth, contact me, and I’ll see if I can help you.
Also, contact me if you are interested in buying short sale or REO properties in Kansas or Missouri, I can easily find properties that fit your criteria and find you a great deal!
A Shared Appreciation Mortgage (SAM) is a rare type of mortgage. Check with you local lender to see if they are willing to participate. a SAM allows you to have a lower interest rate on your loan and payments, but once you sell your house, the bank splits the profit you make off your house, thus the appreciation is shared between you and the bank. This is a rare loan, because not all houses qualify for a SAM. This loan is mostly for NEW houses, because it allows for appropriate appreciation. If your house is too old, it may not appreciate in value if costly repairs are needed in the end. Also, not all neighborhoods appreciate due to a number of variables such as high crime or an unattractive area.
A Reverse Annuity Mortgage (RAM) is an interesting type of mortgage that can be obtained once you pay off your original mortgage. This mortgage allows the bank to pay you monthly payments! Sounds interesting (and a bit confusing). Let me clear somethings up. If you pay off your mortgage, you are said to be “free & clear”. You know have a tangible asset (your house) that you are free to sell or hold. The bank realizes you have that ability to liquidate your assets (sell your house) and retreive that money at a later date, so they give you money up front. Once you sell your house, you own them that amount off your house.
Here’s an example:
Your house is worth $100,000.
Your house is free & clear, which means you havepaid off your mortgage.
You decide you get a RAM, allowing the bank to pay YOU.
The bank pays you $300 a month.
After five years, you decide to sell your home.
The amount the bank paid you over those five years was $18,000.
But over those 5 years, your house appreciated to being worth $120,000!
Once you sell your house for $120,000. you pay the bank the $18,000 that they gave you, and your off your way!