Should You Short Sale Your Home?
No homeowner imagines that they will face a foreclosure when they buy a new home. However, the real estate market crash and the economic downturn combined plunged a large number of homeowners into the long process of losing their homes. What is worse is that the foreclosure process can be stressful and hard. It is a frightening situation.
However, there is another way out ... in the form of a short sale. This is a transaction where the bank allows the delinquent homeowner to sell their home for less than what is owed. Although a short sale does not absolve the borrower of the debt that they have incurred, there are a number of reasons why people should consider this option rather than facing a foreclosure.
More Personal Control
A foreclosure action is dictated and initiated by the laws that govern the proceedings in individual states and the lending company. People will be evicted immediately after the foreclosure process has ended. Essentially, they have to live in the home, never knowing when they’ll be forced to leave. However, this is not the case with a short sale because it is structured similarly to a conventional home sale.
The real estate agent that people choose will list their home, show it to prospective buyers and involve them throughout the process from beginning to end. The lending company will specify a short sale period that usually last for six months. This gives an individual more time to pack and find a new place to live than a foreclosure process usually would. A foreclosure is frequently completed in under three months depending on where people live.
Falling home values in certain areas along with high mortgage payments are some of the reasons why people should short sell their home. Paying a mortgage that has a balance that is significantly higher than the value of their home is often a risky investment. This is because home values in their neighborhood may not reach their former levels.
Aside from that, a high mortgage payment can often drain people financially and lead to foreclosure in the end. A short sale allows people to sell their home if their mortgage payments are no longer affordable or their home has dropped in value.
Less Credit Damage
One concern for many homeowners is whether the bank will sue for a deficiency judgment after a foreclosure. In an attempt to get back the amount of the loan that was not paid, a bank can file a lawsuit against the owner.
However, instead of enduring a possibly lengthy and costly litigation process, some banks will frequently cut their losses with a homeowner who is unable to pay their mortgage especially in the case of a proven hardship, such as a loss of income because of divorce. The reduced amount of money will often ease the burden on a homeowner and not harm their credit rating.
This is not the case with a foreclosure. Aside from spending lots of money in the litigation process, it also has a huge negative impact on their credit rating. What is worse is that it will stay on their credit report for a long time. A person who undergoes a short sale process will be able to obtain a new loan within two years under Fannie Mae guidelines.
The Bottom Line
A short sale can leave a homeowner in a more positive position while lessening their financial burden and salvaging their credit rating. It can also provide them with a platform to start rebuilding financially. With this at hand, it is important for people to consider a short sale rather than facing the consequences that a foreclosure brings.