Short sale pitfalls

In addition to the uncertain timing of a short sale settlement, buyers must be aware that the homes are typically sold "as is," meaning the seller won't make repairs.

"I recommend that buyers have a home inspection, even before the bank approves the offer, so that they have an opportunity to get out of the deal if the home has defects," Cuevas says.

A home that needs repairs may not qualify for Federal Housing Administration financing, which is popular with many first-time homebuyers because of the low, 3.5% down payment requirement.

"Buyers should have their agent find out about the condition of a property, so they can estimate whether FHA financing will work," McDonough says. "FHA rules have stricter definitions of livable condition, but if the home is in good condition, it should be approved. If the home needs repairs, buyers can opt for FHA 203k financing to wrap repair costs into their mortgage."

McDonough says buyers with conventional financing and at least 5% for a down payment will be in a better position for a short sale approval because they are considered less-risky borrowers.

"The biggest risk for buyers, besides timing problems, is that they may put in an offer on a short sale, become emotionally attached and then the deal falls through," says McDonough. "Some buyers know they don't have the risk tolerance for that experience."

As with any other home purchase, buyers should be financially and emotionally prepared for their purchase, with a preapproved mortgage, cash for a down payment and plenty of patience.

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