Home buyers who are interested in new construction may want to skip the second and third stage homes in their favorite housing development. That’s because houses built a year or two earlier in the same development (or similar one nearby) may have been foreclosed on our are on the market at a short sale price.
A “short sale” or “short sell” as some people call them, is where a homeowner attempts to get out from underneath the burden of homeownership by selling his home for less than what it is worth, perhaps even for a price that is less than what is still owed on the mortgage. Of course, their home loan lender must agree to this practice, but in some markets lenders acquiesce because the costly alternative of a foreclosure looms large.
Go West For Bargains
California, Nevada and other states where home development was booming as recently as 2007 are among the places where short sales and cut rate specials are dominant. This is causing a big problem for developers who just a few years ago were able to command market price for whatever they were building. Now, prices have plunged making it a much better deal for home buyers to choose a home that may be just two or three years old while foregoing a similar style but much more expensive home nearby.
Yesterday, The Wall Street Journal published an article detailing the plight of the housing industry, from the vantage point of the housing developer such as KB Home, Pulte Homes, Centex among others. In, Foreclosed Homes Haunt Home Builders, the newspaper shared that bank-owned homes with warranties and low cost mortgages are also impacting their builders’ businesses, forcing them to slash prices or hold up future projects.
Moreover, after hitting an all time high in 2005, sales of new homes plunged to their lowest levels this past January, a resounding declaration that the housing market has collapsed.
Things To Keep In Mind When Buying Short Sale Or Foreclosed Property
While the price deals may be with the newer used home, there are some things consumers need to keep in mind before choosing a foreclosed property or one available as a short sale:
- What about a warranty? Is the home that you are buying still under warranty? If not, will the seller offer one to you? Builders can generally offer a comprehensive warranty that will cover just about anything that will go wrong within the first year or two, an edge that they are quick to tout.
- What kind of mortgage is being offered? You may be able to get a deal on a young home, but will your mortgage cancel out your savings? Some builders are offering fixed rate thirty-year mortgages at an extremely attractive interest rate, as low as 4.25% — savings will come over time, perhaps offering a better deal to the new home buyer.
- Does the home need repairs? If the person who owned the home lost it to foreclosure, do you really think that they cared to keep it up, especially as it became apparent to them that they would lose the home?
- What other incentives are being offered? Some builders are picking up closing costs while many states are offering tax credits to buyers. Recently, Congress passed and the president approved a bill which will also give first time home buyers a credit of $8000 if they purchase a home before December 2009.
For the person in a position to buy a new home this year, their options are excellent and choices quite good. Clearly, 2009 is the best buyer’s market in a generation, one that savvy consumers will want to take advantage of before market values shift in the seller’s favor.