If someone owes more on his mortgage than his home is worth and needs to immediately sell his home, he may short sale the property. The home sells for less than it is worth and does less damage to his credit score than a foreclosure would. The lender may lose money but will not incur the several costs associated with the foreclosure procedure while obtaining possession of the property quicker than through foreclosure.
What’s a Short Sale?
According to Realty Times, a short sale is when a mortgage company agrees to be paid less than a home is worth. The seller has to have a qualified buyer lined and abide by the creditor’s requirements and guidelines. According to Realtor Magazine, creditors accept only two out of every five short sale requests. A short sale is beneficial to a lender because it reduces the lender’s bad debt while at the same time keeping the property occupied. It costs the lender significantly less to process a short sale than to process a foreclosure. A vendor benefits from a short sale as well because she is unburdened from an unaffordable monthly fee. Sellers turn to short sales to avoid foreclosures.
Who Would Short Sale His Home?
Not everyone qualifies to short selling his home. He must have the ability to prove dire hardship, for example unemployment, death, bankruptcy, reduced income, medical crises and out-of-town moves for job purposes. The seller must document his hardships in a cover letter to his lender and comprise two decades’ worth of tax returns, the original purchase contract, bank statements, a balance sheet of his earnings and expenses, proof of earnings and asset statements. Fundamentally, he has to prove he can no longer afford the property. If a vendor is current on his mortgage payments and cannot establish financial hardship, it’s unlikely his lender will approve a short sale.
What Risks Are Involved?
The short sale process isn’t fast, ranging from as little as 30 days to more than six months. This isn’t realistic for people that have inflexible move dates. A short sale also negatively impacts a homeowner’s credit score, although not as drastically as a bankruptcy or a foreclosure. The degree to which a homeowner’s score is damaged depends upon the way in which the lender reports the trade as well as other reports that are negative. Negative data remains on a credit report for seven decades. Lenders turn down 60 percent of short sale provides, so don’t be surprised yours is refused. Additionally, the lender may add unacceptable terms to the contract that induce the sellers to back out of the offer. The home comes in”as is” condition as well, so the buyer is responsible for any damage to the home after she purchases it.
Who Can Purchase a Short Sale Property?
A buyer considering a short sale property has to be ready to wait quite a while for the sale to close and be more adaptable with his shifting strategies. Short sales can close quickly or take months. He must have his financing in order before he implements. According to Realtor Magazine, if a buyer cannot close on the short sale property before he sells his existing residence, lenders won’t see him favorably. Lenders favor offers with flexible terms and no contingencies.
How Do You Make an Offer?
Finding a knowledgeable real estate agent who’s familiar with the short sale process increases a buyer’s odds of lender approval. Real estate lawyers who have expertise with short sales may prove invaluable too. When a buyer discovers a property she is considering, a title officer can investigate each of the liens attached to it. Numerous liens usually mean the short sale process will take more. Research similar properties and find out the home’s market value prior to making an offer. The lender is very likely to refuse an unreasonably low deal. With the help of a real estate agent, a buyer is able to create an offer to a lender and potentially get a home for a favorable price.