Short sales: Will the seller's lender offer the best mortgage loan?

Posted by  on Dec 20, 2010

When you make an offer on a property being sold for less than the balance of its mortgage, you aren't dealing so much with the seller as you are with the seller's lender. It's the lender that will be approving the sales price and paying the real estate agent's commission, and it's the lender that will be losing money on the deal.

Can you just assume the current mortgage on the property?

No, you can't. Most loans today are not assumable, and anyway, if the balance is greater than the property's worth, you wouldn't want to assume it. In addition, in many cases you are dealing with the mortgage servicer, the company that collects the mortgage payments and has the authority to foreclose, rather than the actual lender or investor.

However, you may have to qualify with the seller's lender

Many mortgage lenders or loan servicers want to make sure, before they proceed with a short sale, that you are capable of obtaining financing on the property. So they may require that you prequalify for a mortgage with one of their loan officers, or even go all the way through underwriting and get a credit approval.

Mortgage lenders do this because every short sale requires extensive administration, negotiation and documentation, and every one that falls out of escrow costs money. So lenders want to be sure that you can follow through if they accept your offer.

You may even be offered a discount on the loan fees

Each lender has its own formula for short sale negotiation, which may include discounts on the appraised value or broker price opinion (BPO) figure, covering certain closing costs, or giving you a break on your loan fees.

However, short sale may not be code for "screaming deal."

Short sale just means that the sales price is less the the amount owed on the property. It doesn't automatically mean that the sales price is less than the property is currently worth. Likewise, a mortgage offer with "discounted" or "no" costs isn't automatically the best available. As in everything, the best prices and lowest mortgage rates go to those who are informed and who take some time to shop. Then you'll know a good deal when you see it.


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