What is a short sale? A short sale happens when a lender is willing to accept a lower pay off on a loan than what is currently owed. In a short sale, the borrower will owe more on the property than the home is worth at its current state, however, a short sale happens only when a homeowner qualifies through some kind of hardship.
Why should I short sale my home? To settle for a foreclosure means accepting the damage to your credit a foreclosure would bring. It also means accepting the fact that in many states, the lender will seek a deficiency judgment in the amount that is owed. A short sale by itself will typically lower your credit score by 50-120 points, however the hardest hit on your credit will be from missed mortgage payments, not the short sale itself. Your credit will usually recover from a short sale in as little as two years, whereas a foreclosure could dampen your ability to take out any future mortgage loans for at least five years. Do I get any money back from a short sale? In many cases, cash back incentives are given to homeowners who complete the short sale successfully. The Home Affordable Foreclosure Alternative program offers homeowners $3,000 cash back to help with relocation expenses. This money is in addition to any other relocation assistance and incentives specific to your lender. How do I qualify for a short sale? While lenders have become more lenient in recent times, there are typically three qualifications required for a short sale.
- Financial Insolvency (no other major assets),
- The proceeds from the sale of the property, after all closing costs are paid, are less than the amount currently owed on the property, and
- Financial hardship. Acceptable hardships may vary, but some common ones are; loss of income or employment, divorce or separation, relocation or job transfer, property in need of repairs without recourses to make repairs, major illness and medical expenses, death of a family member, vacant rental properties, etc. In most cases, a short sale is not for those who want to sell, but only for those that have to sell.