Is The Short Sale Of Your Home Right For You?
Are you moving to another city? Paying off debt? Or has your financial situation changed for the worse?
Whatever the reason, you are now seriously considering selling your mortgaged home.
You may be tempted to make the most money out of the sale. But if your reasons for selling is to avoid further financial strain, your options must address this issue.
There are a number of ways to sell your property but if you are looking to sell to avoid foreclosure, you should consider declaring a short sale.
What is a Short Sale?
Short sale is a technical alternative to foreclosure.
In a foreclosure, the property is repossessed by the lender. This happens when the owner is no longer able to pay the lender the mortgage he owes. The lender then sells off the property to recoup the money owed him or her.
In a short sale, both the owner and the lender agree to sell off the property at a lower price than owed on the property. This “sacrifice sale” is the better option to having the owner default on the loan altogether.
A short sale allows the owner to escape having his credit rating shot by declaring a foreclosure, while the lender avoids the fees and costs that foreclosures incur. This way, both owner and lender walk away with minimal losses.
Benefits of a short sale
Short sales were once regarded as bad deals. But that was then. Now, short sales are seen as the better option for the following reasons:
- It protects your credit rating
Unlike a foreclosure, a short sale will not significantly ruin your credit history. This is because you are essentially selling off your home, but at a lower value.
- It allows you to buy another home in 2 years
In a foreclosure the restriction for purchasing a home is almost 4 times that at 7 years.
- It helps the lender
With a short sale, the lender will not have to go through the tedium and cost of a foreclosure. It will level the money owed rather than have you suffer through a total loss.
Short Sale 101
If you’re seriously considering a short sale, here are the factors you need to consider and examine first:
- Mutual agreement
For a short sale to happen, both the lender and the owner must agree to one. Convincing either party might take time.
- Financial history
You will need to prepare your entire financial history such as tax returns, bank statements, and even your asset and liabilities. You will also need to submit a hardship letter.
- Qualifying requirements
Your property must meet the following requirements before you can put it up for a short sale:
- The home market value must have dropped
- The mortgage should be near default status
- The seller must prove why he cannot pay his mortgage
- The seller should have no other assets