Short sale slows home-buying process
When Josh Smith of Marion began looking for a house in town to rent with his girlfriend, Samantha Jo Alvarez, he found that anything to his liking was renting for $450 per month or more. So instead of renting, he decided to look at buying his first house.
“I would rather pay to own than to rent,” he said.
He and Alvarez looked at several houses, but they kept coming back to the house at 118 Locust St. They liked its layout, location, and potential for improvement.
“I like how close it is to the park,” Smith said.
He was familiar with the house dating back to his childhood, when he would play football in a neighboring lot.
It was in their price range, but there was one problem. The lienholder was preparing to foreclose on the house. Instead, Smith negotiated a “short sale” with the lienholder. A short sale is when a house with a mortgage is sold for less than the amount owed.
Securing his own mortgage was a relatively easy process, Smith said, but arranging the short sale with the previous lienholder took about two months.
“They should just call it a long sale,” he joked.
While the short sale was being approved, Smith had time to look for the best rates on insurance.
Smith and Alvarez moved into the house May 7. It has two bedrooms, but a family room could be converted into a third bedroom without much work.
The home was built in 1920 but has had extensive updates. Smith plans to fence in the backyard and build a backyard deck sometime in the future.
Advice for first-time homebuyers
Jessie Nikkel of Central National Bank said she would advise any first-time homebuyer to get prequalified for a loan before looking at houses. Knowing what is in their price range can save someone a lot of time and effort, she said.
“It doesn’t cost anything to do what I consider prequalification,” she said.
Even if someone doesn’t have something in mind when they get prequalified, something may come up, Nikkel said. Prequalification is generally valid for 120 days.
There are assistance programs for first-time buyers to reduce the required down payment.
“Five percent is a minimum for a conventional loan,” Nikkel said.
However, unless a buyer makes a 20 percent down payment, they will have to pay private mortgage insurance, which will increase the cost of the loan.
Nikkel said that most of the time, if a person can afford a down payment, mortgage payments will be less than rent.