Are you wondering what type of sale, a foreclosure vs. short sale, will give you the best return on investment?

It is often tough to decide which one will give you a better ROI but knowing the details about each type of sale, will help in making your buying decision. In most cases, both properties will usually be distressed and there are usually additional steps you will have to take as the buyer when buying a distressed home.

• The definitions of foreclosure vs. short sale: With a short sale, the homeowner receives permission from the lender to sell the home for less than what is owed on the mortgage. This is a pardon from the banks because the homeowner can no longer afford the mortgage payments but they want to avoid foreclosure. A foreclosure is a property that is now owned by the bank. The previous owners did not pay their mortgage and after falling delinquent, instead of requesting a short sale, were forced to vacate the property.
• There is a big difference in the time it takes for a foreclosure vs. short sale. Don’t be deceived by the name, “short sale” as they usually take much longer than a foreclosure. A lender has 30 days to respond to a short sale offer and up to 60 days to approve or reject the offer. After the 60 days, you must wait for closing. Just because the short sale deal is set, doesn’t mean the home will not be foreclosed. If the short sale deal takes too long, the lender may be forced to foreclose regardless of your short-sale deal. With a foreclosure you can hear back within a few days if your offer was accepted. If you are in a rush, a foreclosure is a faster route.
• In a foreclosure vs. short sale, a foreclosed home will be empty since the lender has evicted the previous owners or they have abandoned their home. Short sale properties still have the homeowners living inside. In most cases, the short sale homes are better maintained than foreclosed homes since the homeowners are still living in them. There is the chance that an angry distressed homeowner could cause deliberate damage to the home upon moving out.
• When negotiating a foreclosure vs. short sale, you usually have more negotiating power with a foreclosure. Short sales usually have limited room for negotiating, depending on how much the homeowner’s mortgage is for and what the bank is willing to work with.
• Foreclosures usually require more repairs to be made that short sale homes. In a foreclosure vs. short sale situation, make sure to inspect the home thoroughly and make sure you are aware of any major repairs needed to make the home livable. If you are buying a foreclosure, never spend more than 5 to 10 percent of your purchase price for renovations. If you do, you might be getting as good of a deal as you think.

Have you recently bought a foreclosure or short sale home? Please let us know your thoughts on the buying process. Looking to purchase? Please call The Lawhead Team at 760-518-8700.

If you are in the market for a home, chances are most houses on the market are foreclosures. The Lawhead Team would like to share some pros and cons involved with buy a foreclosure property.

Pro’s of buying a foreclosure property:

• Buy below value – While the deals aren’t as good as they were in the past, you may still be able to purchase a foreclosed home for three quarters of what a home is worth.
• Faster process – If you find a home in the pre-foreclosure stage, there will be a sense of urgency from the seller to avoid the stigma of a formal foreclosure. You may request inspections on the property prior to making a final decision along with research the title to make sure it is clear of liens.
• You are allowed to inspect a foreclosure before buying it – You will know exactly what you are getting and will be given a predetermined contingency period in which to make your final decisions.
• You may use regular mortgage financing – Even though the process of buying a foreclosure is different from purchasing a regular home, you can still take out a mortgage loan to pay for the property.
• Quicker sale and negotiating powers – The bank will be motivated to get the property sold and may negotiate price, down payment, closing costs, etc.

Con’s of buying a foreclosure property:

• Maintenance issues – Homeowners who know months in advance they are losing their property may be less likely to take care of it and may not have the funds to make necessary repairs. In extreme cases, homeowners may feel bitter about their bad investment and may purposefully damage the property they’ll be vacating.
• Unforeseen repairs – While you may be able to buy a foreclosure home below its market value, that doesn’t mean you may be getting the best deal when you consider major repairs that may need to be done.
• No warranty available with a foreclosure – A foreclosure is sold as is with no cause for recourse if the home has defects. If the home has been lived in already you may be more likely to have issues that won’t be discovered until you’ve moved in.
• You may incur the previous owners cost of neglect – When purchasing a foreclosure, keep in mind the previous owner couldn’t afford to keep it. In this case, it is possible a lien may have been placed against the home which becomes your responsibility once you’ve purchased it.  Do a title search before committing to buying a foreclosure to uncover any liens.

Do you have questions about purchasing a home in the North San Diego County area? Contact The Lawhead Team for all your buying and selling needs.