Many homes on the market may be advertised as short sales or foreclosures, which can mean a low price for you as a buyer. Understanding the difference between a foreclosure and short sale could prove helpful when trying to buy a home in Minnesota.
If a home is in foreclosure, the seller's lender has taken title of the home and is selling it directly. If a home is being sold for less than what the current seller owes on the property, and they do not have funds to make up the difference at closing, the sale is considered a short sale.
The challenges of purchasing a foreclosure or short sale vary as well. Foreclosures often end up in disrepair after sitting vacant throughout the foreclosure process.
Meanwhile, the main difficulty of purchasing a short sale is that it is a time-consuming process. After a homebuyer has come to an agreement with the seller, the lenders then have to approve the sale before closing. When there is only one mortgage, experts say lenders take on average two months for approval, while if there is more than one mortgage with different lenders, the approval can often take up to four months or longer.
Lenders are known to like no-contingency offers and closing terms that are flexible. Buyers are advised against a short sale if they have a home to sell before closing on a short-sale purchase or have to be in a new residence before a specific time.