There’s a lot of heat surrounding the topic of short sales, but it’s unclear to many what exactly it entails. Often used interchangeably with foreclosure, it’s actually pretty close and far off at the same time. In essence, a short sale is a home that is being sold and priced at less than the current owner’s outstanding mortgage. When a homeowner is no longer able to fulfill payments on their house’s mortgage, a short sale is a way for them to avoid foreclosure and somewhat save face. Lenders will agree with these sort of deals because to them, it’s better to recover the majority of a mortgage rather than deal with a total loss.
Let’s say you’re a homeowner with some serious financial turbulence. On top of struggling to pay mortgage, the value of the home has dropped significantly. You’re better off selling the home to a willing buyer in order to pay a little bit of your overall balance to the bank. That’s exactly what a short sale allows you to do.
The first step to making a short sale is to first get an experienced real estate agent who specializes in short sales. They will be able to gauge if a short sale is really the best option for you. It is crucial that the real estate agent you decide to work with has experience. Some sellers might try to hire a lawyer, but you’ll ultimately want to go with an agent, as is the policy in some areas.
Next is getting your agent to list the home on the market and find a willing buyer. Remember when I said it’s crucial that your agent has experience? That’s because an inexperienced agent might price the home unrealistically low and you’ll never get lender approval that way. Most banks will allow a minimum 90% market value, so it’s important to keep that in mind when pricing the home. If you decide to accept a buyer’s offer, you can move on to the next step.
The moment you have a buyer at the ready, you can now approach the bank or lender and apply for short sale status. A short sale simply will not happen without your lender’s approval. This involves submitting a financial statement, copies of your financial records and a letter describing your hardships and why a short sale needs to be made. Your agent should be able to help you when handing in your short sale package and will also help you gather the required documents. Once you’ve submitted an application, you’ll just have to wait for approval.
It was mentioned that a short sale is often closely associated with foreclosure, but they are ultimately two very different things. Yes, in both situations, the borrower will find themselves relieved of the home, but a short sale is much less painful than foreclosure.
In foreclosure, the bank/lender seizes ownership of the property, which unfortunately leads to eviction in some cases. Short sales, on the other hand, give the borrower some control and reflects better on your credit record. It shows that you took action before the bank repossesses the home. Not only that, foreclosure can make you ineligible to make any purchases for up to 7 years, while the effect of a short sale will only last you about 2 years. At the end of a short sale, you won’t receive any of the net proceeds as it will all go straight to the lender in lieu of having to pay off your mortgage.
That being said, one of the bigger challenges when approaching a short sale is finding the perfect balance with the price between affordable enough to be easy to sell while high enough to satiate your debt to the lender. Go too high, it will be impossible to find a willing buyer. Go too low, your offer will never pull through with the bank.
As previously mentioned, only a professional will be able to get that perfect price point down for you, an amateur is likely to make inaccurate estimations. We at Housing Solutions got you covered! Having handled hundreds of short sales and reduced payoffs, we have the experience you need to find success in a short sale venture. We’ll help you through the whole journey, from finding a buyer to making an offer to closing the deal. As an added bonus, we work with an attorney firm that will directly negotiate with the mortgage company on your behalf, no extra charges! Don’t trust just anybody to help you navigate this delicate process, especially with your credit and future ability to purchase at stake.
Reach out to us now via our website, and you’ll find all your solutions under one roof!