Short Sale Basics
Earlier this week, we discussed why not to strategically default on your mortgage, but what do you do if you can’t make your payments, or if your home is worth less than you originally paid for it, and you have to move?
You may be in a position to consider a short sale. In a short sale, the home is sold for less than it’s worth. It’s a triple-win situation. You get out of the mortgage with your credit more-or-less intact (more on that in a minute), the buyer gets a discounted price on a great home, and the lender doesn’t have to pursue a foreclosure if you default on your loan.
The first step is to find out if your lender will allow a short sale. If your home is worth less than you owe, a short sale might be considered. On the other hand, if the lender reclaim close to the amount owed through a foreclosure, the lender might not even consider a short sale.
If you owe more than the home is worth, contact your lender for a short sale application. A lender will not typically discuss a short sale with a potential buyer until an application is filled out and reviewed. With your application, you will probably also need to include a hardship letter. Explain to the lender why you want to pursue a short sale, and why it is the best option.
If the lender approves the possibility of a short sale, the next step is to contact a real estate agent and begin looking for a buyer. Many buyers are looking for a great deal on a home, so it may not take long to find an interested buyer. The buyer’s offer on the home is sent to the lender, and then you wait.
Waiting is often the most frustrating part of the short sale process. The buyer’s offer has to be approved by multiple members of the lending company. If anyone denies approval, the offer is returned. At this point, the buyer can make another offer, or walk away, if they choose.
Short sales are a great option, but they aren’t a perfect solution. Your credit rating will still take a hit, although not as much of one as you would face through foreclosure. Short sales also take a long time. A normal home sale may go from start to finish in a matter of weeks; a short sale may take months, if it is approved at all. In the meantime, you will still be responsible for the mortgage payments on the home.
If you need to get out of an upside down mortgage, a short sale can be a great way to do it, as long as you are willing to put in the extra time and effort. It is a better option than a foreclosure or strategic default, and, thanks to government incentives, short sales aren’t as difficult to get approved as they used to be.