Short sale allows a homeowner to sell his home at a price below the mortgage of the home. This means that the market value of the home has become lower than the existing mortgage of the property. This type of property sale occurs only if the lender approves of it. Could this be the concrete reason why some homeowners are afraid to short sale?
Since 2011, the market value of properties especially houses have been dwindling. This scenario leaves most homeowners to owe more than what they can actually get from a short sale. However, lower property cost is not the only reason why some homeowners are afraid to short sale. Another reason is the difficulty of proving incapacity to continue paying for the mortgage. This is termed as hardship.
Hardship, as it literally means refer to all instances making the payment of the house mortgage difficult for the homeowner. Reasons include death, unemployment, divorce or separation, and large medical bills among others. However, documentary proofs must be submitted to the lender together with a letter stating a direct-to-the-point utterance of the reason for the hardship forcing the homeowner to enter the short sale.
Homeowners are also afraid to short sale because of lack of understanding. Some think of it as synonymous to foreclosure. While both of them affects credit scores, short sale has lesser impact on credit history as compared to a foreclosure that could ruin a homeowner’s credit history for two years or more rendering him difficult to obtain new loans.
Some homeowners do not know that short sale is more desirable than foreclosure. Although the property would be sold for lesser value than the remaining mortgage, the balance would be written off as zero. It is a better way of minimizing the negative effects on credit history. Short sale is therefore a better part of a credit history than a foreclosure. And in most instances, lenders like banks approve of short sale to avoid higher costs associated with foreclosures.
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