Tips for Buying a Short-Sale House in California

Thinking of buying a short sale home in California? Here are some tips that can make your purchase as smooth as possible.

Knowing about Short Sale:
You need to know more about short sale and difference between short sale and other sales (regular sale & reo sale). Whether it’s the right buy for you or not. If you want to buy as soon as possible and cannot wait couple of months then short sale is not the right choice to write an offer. But if you can wait couple of month then look for short sale homes also in your search criteria and ask your agent to show short sale listings also.

Get Pre-Approval:
This is important whether you are writing offer to short sale or other type of listings. Pre-approval will make your offer stronger and gets higher priority than others who are submitting without pre-approval. So, make sure you are pre approved with a good lender before your home search.

Time Frame:
It takes time to know the final approval from the seller’s lender after you submit your offer, may be 1 month, 3 months or more. You need to have patience to wait that long for your dream home.

Offer Acceptance:
Even though, seller accepts your offer, doesn’t mean that your offer has accepted and you can move forward with that offer. Once you submit the offer, the seller’s agent forwards to the seller’s lender for final approval. The lender may accept it, reject or counter back to you with their price based on their own appraisal price.

Other Liens:
If other liens like HOA, tax liens and others where the seller owes to those lien holders, could also be a hindrance to the final approval of the sale. Most of the time, bank approves to pay all the liens but sometime they don’t, in that case either the seller or buyer or both needs to contribute to get that good deal.

Writing Offer:
Write a good offer based on the market value, don’t think that it’s a short sale, you can write a ridiculously low offer and bank will accept it. No, once you submit the offer, bank will also do their part by ordering appraisal to check the market value. They compare the appraisal value with your offer price. If you really like the house then write your best offer so that you can have higher chance of getting that house. Now, write only for those houses which you really like and not all short sale listings.

Check Listing Agent:
Check whether the agent representing the seller has experience in short sale or trained /certified agent in short sale, this shows that the agent can handle the short sale correctly from the beginning itself from submitting the package to getting approval from the lender. If the buyer side agent is also experienced is short sale then that would be a plus point to the buyer. You can find a licensed California real estate agent at Realtor.com or by going to any of the major real estate firms in your area to interview an agent. Find an agent with a diverse marketing plan who has a proven track record of success.

Follow up:
You need patience, once you submit your offer, don’t call your agent every other day for the status. The lender takes time depends on their work load to order appraisal or BPO (Broker Price Opinion) to determine the market value. This process itself sometime takes 30 days and another 30 or more days for final approval. But make sure, you ask your agent to follow up with the listing agent every other week or so for the latest update if any.

Backup Offers:
If you really like the house and somebody already wrote an offer, then ask your agent to submit a backup offer, if they are accepting the backup offers because sometimes the first buyer may walk away from the deal due to long waiting period or due to some other personal reasons.

Terms & Condition:
All the short sale listings are “As-is” sale, but that doesn’t mean you have to buy a house without any inspections. You have the right to do all the inspections but the seller will not fix anything if there’s any repair. It depends on you whether you are satisfied with the inspection reports and repairs(if any).

After getting the approval letter from the lender then work on to remove your contingencies(inspections, loan approval) and submit your initial deposit to the title within the specified time so that you can close the escrow on time and move to your home. Buyers, you can get a deal with a short sale, but it comes at a price. If you have the time and the patience you could be rewarded handsomely.

The California Housing Market

According to first quarter data for this fiscal year 2012 in the state of California, roughly 55 percent of occupied housing is owner-occupied, with the remaining 45 percent being renter-occupied. Of those who are statistically classified as owning a home, over 75 percent carry it with a mortgage and about 35 percent, or about 5,100,000 homes are near negative equity. It’s no wonder such a large number of people are choosing to rent homes in California when a majority of those who “own” a house would likely end up paying to sell. With the largest number of residents in the United States, California is actually a top spot for negative equity, with some 257,000 homes listed as being in foreclosure. Unlisted are roughly 500,000 homes that comprise state’s vast shadow inventory.

Recent data from the latest Census indicates that median household income in California is $57,000, while median net worth of a Californian household is $61,000 based on [outdated] figures from 2008 when the numbers were even better than they are now. Here in the Golden State where women herald Louis Vuitton and Prada and every other person drives an expensive luxury car, these numbers seem a gross underestimate. However, FHA insured loans that require only a 3.5 percent down payment allow people with little savings to buy homes and hidden $800 lease payments on those foreign cars only add to the image of affluence that Californians seem bent on maintaining. Clearly it is not just the bubble contributing to this trend of negative equity, but psychology as well.

The median income to median price of a home is extremely important because it shows what investors can afford in a home price. Typically the banks are going to require that you have a 40% – 45% debt to income ratio in order to qualify. This means that all of your debts including car payments, credit card payment, house payments and more cannot be more than 40% – 45% of your income in order for you to qualify for financing. Since the median income in California is $57,000 then the maximum amount of debt one can pay (including the mortgage payments) is $1,900 – $2,138 per month. Take a $400 per month car payment out, $400 per month in credit card payments and $400 out for other payments and you are left with a maximum mortgage payment of $700 – $1,118 which equates to a house worth $138,000 – $221,000. The current median home price in Southern California is about $270,000 which means prices still have to come down in order for people to qualify. The professional flippers I know are finding it is taking an av rage of 2.5 buyers to sell their home at market value due to these financing issues.