Considering A Short Sale Or Foreclosure For Your First Home? What Are Your Financing Options?

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If you're considering moving from a rental home or apartment to a home you own, you may find yourself dismayed at the rapidly rising cost of real estate in your area. For many prospective first time home buyers, paying rent each month leaves little left over to save for a down payment, especially when purchase prices seem to be rising far faster than wages. If this is the case, looking at your less-than-perfect options--including real estate owned (REO) properties and homes subject to short sale--may be the best way to accommodate your budget while getting you into a home sooner rather than later. 

However, many banks and credit unions are less willing to lend money on a home that may be sold "as is." What can you do to supplement your savings and finally purchase your own home? Read on to learn more about your financing options when purchasing a short sale or foreclosed home. 

Why is short sale and foreclosure financing different?

When a home is being sold as a "short sale," this means that the listed sale price is less than the total amount owed on the home through a primary mortgage and home equity loan or line of credit. Because of this, the lender is taking a loss on the home; and while there may be nothing wrong with the home, in many cases, a home being sold as a short sale has cosmetic or structural damage that has impacted its value. 

Meanwhile, foreclosed homes are often sold at a fraction of their original value due to deterioration in their condition. Because many states have prolonged foreclosure processes, a foreclosed home can sit vacant for months or even years before being sold or purchased by a bank, causing plumbing problems, water leaks, and other issues that can impact its structural integrity.

Because of this, obtaining financing for a foreclosed home or short sale can sometimes be a challenge, even for first-time home buyers with good credit histories. 

What are your financing options when it comes to a short sale or foreclosure? 

If you can't afford to pay cash for your foreclosure or short sale, you'll want to look into alternative financing options designed for REO home buyers. Although these financing options are often higher-interest than traditional mortgages, they'll get you over the initial hurdle of homeownership; after you've gained title in the home, you may be able to refinance into a traditional mortgage at a lower interest rate. 

You may also want to take out a personal loan or refinance a vehicle. Depending upon the price of the home you're hoping to purchase and the amount you have saved, making a cash offer by scraping up all available sources of cash may be all you need to be the winning bidder on your new home. 


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