As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they're actually quite different, with varying timelines and financial impact on the homeowner.
Here's a brief overview.
A short sale comes into play when a homeowner needs to sell their home but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.
On the buyer side, short sales typically take three to four months to complete and manty of the closing and repair costs are shifted from the seller to the lender.
On the other hand, a foreclosure ocurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner.
After foreclosure the bank can sell the home in a foreclosure auction. For buyers, foreclosures are riskier than short sales because homes are often bought sight unseen with no inspection or warranty.
If you're a homeowner who's behind on your payments or have upside down equity (you owe more than your house is worth), CONTACT ME TODAY so we can discuss your options.
You've most likely heard the rule: Save for a 20% down payment before you buy a home. The logic behind saving 20% is solid, as it shows that you have the financial discipline and stability to save for a long-term goal. It also helps you get favorable rates from lenders.
But there can actually be financial benefits to putting down a small down payment - as low as 3% - rather than parting with so much cash up front, even if you have the money available.
The downsides of a small down payment are pretty well known. You'll have to pay Private Mortgage Insurance for years, and the lower your down payment, the more you'll pay. You'll also be offered a lesser loan amount than borrowers who have a 20% down payment, which will eliminate some homes from your search.
The national average for home appreciation is about 5%. The appreciation is independing from your home payment, so whether you put down 20% or 3%, the increase in equity is the same. If you're looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other investment opportunities.
THE HAPPY MEDIUM
Of course, your home payment options aren't binary. Most borrowers can find some common ground between the security of a traditional 20% and an investment-focused, small down payment. As your trusted real estate professional, I can provide you with some answers as you explore your financing options.