What are the differences between buying short sales, bank owned homes, HUD homes, and private sales?

Have you ever wondered about what type of home buying transaction (short sale, bank owned, private sale, or HUD home) is better for you and your family? Have you dreamed about buying a short sale, but is concerned about all the negative things and war stories you have heard about short sales? Do you love the idea of buying a great house at a great discount?

In this article we will try to answer these and similar questions we hear from home buyers almost on a daily basis. We will provide an overview of each type of transaction and we will share our own experience working with each one.

Private Sales

Also known as “traditional” or “regular” sales. These are the transactions where the home seller is selling his house to the buyer he chooses. The seller does not need an approval or authorization from the bank that holds the mortgage. In this type of transaction the home buyer will bring enough funds to pay the balance of the original mortgage.

As a general rule, homes sold through these “traditional” sales are usually in better condition than bank owned homes. However home buyers should also expect to pay more because most home owners will want top dollar for their homes.

Two benefits of buying through a “regular” transaction is that the buyer can negotiate repairs and response times are usually very fast.

Bank Owned Homes

Also known as foreclosed homes. These are the homes banks obtain through a foreclosure process. They usually take longer to close than a “regular” transaction but not by much. Banks want to close as fast as possible. However they have lots of internal steps, approval levels, and bureaucracy that they have to go through before they can transfer the house. And each step adds to the overall timeframe of the transaction.

Buyers can usually find a good deal if they are patient and willing to walk away from the transaction if the bank becomes unreasonable. Banks usually do not repair homes they get through foreclosure. As a result, bank owned homes will typically require some repairs.

HUD Homes

These are homes owned by the U.S. Department of Housing and Urban Development. They are sold through an electronic auction to the highest bidder. Buyers should expect to find properties in similar condition as bank owned homes.

A benefit of buying a HUD home is that the home buying process is very well defined and follow a very strict timeline. Home buyers usually receive an answer within 24 hours of bid submission and a typical transaction closes between 45 and 55 days from the date when the bid was submitted.

Short Sales

Short sales are sales when the owner owes more on the mortgage than the house is worth. Short sales need to be approved and authorized by the bank(s) holding the mortgage(s).

Houses in short sales are typically in better condition than bank owned homes. Most owners that are trying to complete a short sale will maintain the property throughout the process. In many cases the owner is still living in the house during the short sale process and will move out orderly once the house sells.

One of the challenges in buying a short sale home is that there is no guarantee that the bank(s) will approve it. So, home buyers that want to pursue short sales usually need to be very patient and be willing to wait for the outcome of the transaction, which can take anywhere from a couple of months to 4 or 5 months.

Home buyers can get some amazing deals with short sales, as long as they are patient and they are willing to walk away from the transaction if the bank becomes unreasonable.