When is the best time to consider a short sale?
Deciding to Short Sale your property is usually considered an option after homeowners have exhausted their savings, spent weeks or months trying to get a loan modification and after a Notice of Trustees Sale (in King County ) has been filed. I meet people weekly who are at the end of their available options in a foreclosure action and are just beginning the short sale process 30 to 60 days in advance of a foreclosure sale. Reviewing their history gives me the opportunity to consider what would have been a better strategy to addressing financial hardship.
The best time to consider a short sale on your property occurs prior to dipping into your savings to make your monthly mortgage payment. It should be a part of a designed strategy that preserves your financial resources and protects your credit to the extent possible. Good planning in the face of financial hardship pays big dividends.
First and foremost you must determine if keeping your house long term is even feasible! Your house payment should be no more than 31% of your gross monthly income. Total up your monthly consumer debt payments and your mortgage(s) and that should be no more than 45% of your gross monthly income. If your debt is exceeding those ratios then we need to make a plan. Short Sale? Let's see.
If lowering your monthly mortgage payment by extending the term to 40 years and lowering the interest to 2% brings you into line, a loan modification may be an option. If that doesn't meet the ratios you will likely not qualify for the loan modification plans available. I can help with the calculations.
If you own more than 90% of what the house will sell for and you are upside down on the gross income ratios, short selling is a good option. The question of when to make this decision is, again, before you start making payments from your savings rather than your paycheck.
This is a difficult and confronting conversation to have with yourself or your significant other but ultimately can save you tens of thousands of dollars. Waiting until a short sale is your last option prior to bankruptcy or foreclosure will likely rob you of resources and savings you worked years to build up.
If you are having trouble having this conversation seek experienced professionals to assist you.
Ken Crotts
Broker, Certified Short Sale Specialist
206-999-7998
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