What a difference a year or two makes in the world of real estate. A couple of years ago we could get a loan with lower credit scores and finance the purchase of a home at 100% of the sale price and roll our closing cost in also.
The actions of two to three years ago have put us in a very tough situation now. Unfortunately people were put into loans that they shouldn't have been put in. The housing market hit a wall and prices started tumbling. Homeowners that had financed at 100% or who had pulled equity out of their house found they owed more on their home than it was worth. Those that have to sell their home find they can't afford to do so because they are upside down with what they owe compared to the value of the home.
While this is a very tough position to be in, it is not hopeless. Many people feel their only option is to let their home go to foreclosure. It is NOT the only option and it shouldn't be in your thought process. You have the option of doing a Short Sale.
A Short Sale is a process that needs to worked out in cooperation with the lending institution that holds your loan. You will be required to fill out documents that show your financial status. You will want to have you Realtor be in touch with the lender as well so they can determine the appropriate price to get your home sold as fast as possible.
The idea of a short sale is this; if you owe $100,000 on your home and the market value is $95,000..... your Realtor may suggest putting your home on the market for $90,000 subject to the banks approval of a short sale. It is wise to have your lender and Realtor in agreement as to the bottom line price.
Let's say you get an offer for $88,000..... the offer goes to the bank and they review what their total loss would be between the $100,000 you owe and the $88,000 offer, minus commission, closing cost, transfer tax, title insurance, etc... Let's say the final number comes back at $80,000... the bank would have a loss of $20,000. They can agree to the offer and they would forgive you for the loss of $20,000.
Why would the bank do this? It is estimated that the cost of taking a home into foreclosure is about $40,000 to $50,000. It becomes a business decision on their part. The are not in the business of owning homes.
What are the ramifications for you? Your credit rating / report will take a hit for a couple to three years, but it is much better than having a foreclosure and taking a hit on your credit for 7 years.
If you find that you are in trouble or heading into trouble, talk with your Realtor and lender and head it off before it becomes too late.
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