Buying After a Short Sale: 6 Ways to Get It Right the Second Time Around
April 26, 2016
Thinking about buying a home again after a short sale or foreclosure? Some people think that just because it didn’t work out the first time they owned a home that it means homeownership isn’t right for them. But this isn’t true. We have already sold homes to our past short sale clients. Once they did a short sale, after waiting for a couple of years they were excited to be able to purchase again. And this time they chose a home that they liked much more because they could afford it and they learned which mistakes to avoid.
Ready to Buy a Home Again?
Here are Some Tips to Getting it Right the Second Time Around:
1. First of all, don’t be scared!
Just because it didn’t work out last time you can’t ever own again. The fact is most people can purchase a home 2 to 3 years after doing a short sale. And if you’re ready financially, now is a great time to buy a home. Interest rates are very low right now, so your monthly payments will most likely be less than what you were paying even a few years ago. Before you start shopping for a home, make sure you have taken steps to fix your credit. For more information on fixing your credit score, read 5 Ways to Repair Your Credit After a Short Sale.
2. Buy only when you’re ready to buy.
Sounds obvious right? Many of our short sale clients bought homes before they were financially ready to take on a mortgage. The trick is to buy a home that allows you to obtain a mortgage that you can pay in good times and bad. If you are a married couple with two incomes, make sure you can pay the mortgage on one income for a few months if needed in case one of you gets laid off. To figure out how much home you can afford, download our Home Buyer Budget Worksheet.
3. Talk to a mortgage broker who specializes in buying after short sales.
Working with a good mortgage broker at a reputable lender is actually one of the first steps you should take when considering buying a home again. Even if you have poor credit, talking to a mortgage broker is a good way to navigate your way to good credit because of the credit counseling they will provide. A good mortgage broker will verify your credit and also verify your income. The reason this is so important is because it’s a key component that underwriters use to ensure you qualify. If it is not done at the preapproval stage it can lead to a very disappointing turn further into the process.
You’ll want enough money for upfront costs such as the down payment, but also have enough for the closing costs, which can run about $3,500-$6,000 in Massachusetts and New Hampshire. You will also want to have enough cash on hand for moving costs, maintenance, and renovations once you move into the home. This time around you don’t want to be strapped for cash as soon as you move into your new home. You can buy with as little as 3.5% with an FHA mortgage, but as a general rule, we prefer to see buyers have 10% of what they want to buy in savings.
5. Get a Buyer’s Agent.
Having a buyer’s agent guide you through the home buying process is one of the smartest moves you can make when buying a home after a short sale or foreclosure. Your buyer’s agent will help you find the home that’s right for you and will work within your budget. Remember, the seller’s agent is obligated to represent the best interest of the person who is selling the home. A buyer’s agent, on the other hand, represents YOUR best interests as the buyer. An experienced buyer’s agent can save you thousands of dollars in a negotiation, including which appliances stay in the home to having certain repairs made before the purchase is finalized. The buyer’s agent, along with your real estate attorney, can also make certain that all the necessary paperwork is properly completed and take care of details to ensure a smooth closing.
6. Buy a home for the long term.
Many of our short sale clients bought a home thinking they’d only be in the home a couple of years. Buying a home is for the long term. You pay much more interest in the first few years you own a home, so you should plan to live in the home for at least 5 years. Since you’re going to be living in this home for a while, take your time finding the right one for you.
Once you own a home, put extra money towards the principal. This is one of the best ways to shorten the life of the loan. For instance, if you purchased a home for $250,000 with a 30 year fixed interest rate of 3.7%, and you made an extra $1,000 payment on your mortgage just once a year, you would pay off remaining loan balance 3 years and 6 months earlier. Because you will pay off your loan sooner, you will save $22,243.88 in interest over the life of the loan. Now imagine what paying an extra $2,000 to $3,000 a year could save you!
Get a fresh start. Follow these steps so owning your dream home can be a reality again!