Major Issues With Financing A Short Sale

There are a number of factors that make financing a short sale unique. The selection of short sale financing loan has a huge impact for a variety of reasons. You might not be able to close the short sale even if short sale is approved by the seller’s bank. The selection of wrong loan type will not let you close the deal. Unfortunately, not every type of available financing in the United States can be used to buy a short sale.

There are a number of problems with financing a short sale. Some of them are given here:

Interest Rates Fluctuation

Unless you decide to buy an FHA short sale or Wachovia short sale you will have to wait a long to get a short sale approved. Getting a short sale approved may take from four to eight weeks on average, to year or longer. During this waiting period, interest rates fluctuate. Most of the lenders will not lock a loan more than 30 days without charging you for the privilege. Some of will not give you a loan lock until you get a short sale approved. If interest rates increases you will not be longer qualified for a short sale. 

Revision of Good Faith Estimate

Many banks want to close short sale within the 30 days of short sale approval. If you are opting for a loan that takes a longer approval time such as a Section 184 loan, it may not be possible for you to close the short sale within the specified period and your short sale approval may expire. Sometimes, delays with short sale are inevitable even in case of conventional loan. There are chances that appraiser are backed up and the appraisal cannot be completed and underwriting takes longer than usual. If the loan representative did not get a proper breakdown of approval fees and some of the fees the seller is not allowed to pay were transferred to the buyer, revising the Good Faith Estimate could delay the process as well. The majority of the banks will not allow an extension for their short sale approval letter.

Loan Conditions

Many lenders have many conditions. FHA repair guidelines may require a lot of repairs. A VA Loan definitely will require a pest report and pest clearance certification. Even if your loan is conventional, ask for a replacement before agreeing to finance that short sale.

Closing Cost

Sometimes buyers will ask a seller to pay the closing costs. If the buyer does not have enough money or don’t want to pay closing costs and the bank refuses the concession, the buyer may not be able to buy the short sale. Sometimes, Wells Fargo FHA short sale banks will reduce the amount typically paid by other banks because Wells Fargo says its guidelines for FHA prohibit a full 3% credit in some circumstances. It has been observed that some short sale banks will automatically reject a buyer closing credit if the buyer is putting down more than 3.5%. It is suggested asking the listing agent if the bank will pay a concession toward closing costs when you write the offer, or offer more than list price to compensate.

Multiple Loans

It has been observed that sometimes a borrower has multiple loans. If there are two or more than two loans on a short sale, then you will need to get the approval from all the lenders. You are taking a huge risk if you are moving forward with an appraisal or home inspection without getting the approval from both lenders. One lender might agree, but there are chances that others could not agree with the terms and conditions and reject the short sale. They may have objection on seller’s contribution on the HUD. It is better to Ask to see a preliminary title report or title commitment to determine how many loans are secured to the property. There could be a paid-off loan that was never reconveyed.