If you’re struggling to make your mortgage payments and owe more on your home than it’s worth, a short sale might be an option for you. A real estate short sale is when you sell your home for less than what you owe on your mortgage, and the lender agrees to accept the proceeds as full payment.
Qualifying for a short sale can be a complex process, and it’s important to understand the eligibility criteria and steps involved before pursuing this option.
Financial Hardship
To be eligible for a short sale, you must have a valid financial hardship that prevents you from making your mortgage payments. This could be due to a job loss, divorce, medical bills, or the death of a spouse. You will need to provide documentation to prove your financial hardship, such as pay stubs, bank statements, and tax returns.
It’s important to note that some lenders have specific requirements for what constitutes a valid financial hardship. For example, some lenders may only consider a short sale if you’ve experienced a 20% reduction in your income. It’s best to check with your lender to understand their specific requirements.
Owed More Than The Property’s Worth
The next eligibility criterion for a short sale is that you owe more on your mortgage than the current market value of your home. This is also known as being “underwater” on your mortgage. Your lender will require an appraisal or a broker price opinion to determine the current market value of your home.
It’s important to note that the lender will typically only agree to a short sale if the proceeds from the sale will be more than what they would receive from a foreclosure. If the lender believes they can recoup more money through foreclosure, they may not agree to a short sale.
Unable To Sell Home By Other Means
Before your lender will consider a short sale, they will want to see that you have attempted to sell your home by other means, such as listing it on the market at a fair price for a reasonable amount of time. This is known as a “listing history.” You may also need to provide documentation of any offers you received and why they were rejected.
Your lender may also require that you work with a licensed real estate agent who has experience with short sales. The agent will be responsible for marketing and selling your home.
Not Qualified For Loan Modification
If you have applied for a loan modification and were denied or it was not a viable option, you may be eligible for a short sale. A loan modification is when your lender modifies the terms of your mortgage to make it more affordable, such as lowering your interest rate or extending the term of your loan.
It’s important to note that a short sale is not always a better option than a loan modification. In some cases, a loan modification may be a better option for homeowners who are struggling to make their mortgage payments.
Cooperation With Lender
To qualify for a short sale, you must be willing to cooperate with your lender throughout the process. This includes providing documentation of your financial hardship and your home’s value, as well as working with the lender to market and sell your home.
Your lender will require a short sale package that includes a hardship letter, financial statements, and other supporting documentation. You will also need to provide the lender with a purchase contract from a qualified buyer.
It’s important to note that a short sale can have an impact on your credit score and may result in a deficiency judgment, which is when your lender seeks to collect the remaining balance owed on your mortgage. However, a short sale is often a better option than foreclosure and can help you avoid the long-term consequences of a foreclosure on your credit score.
In conclusion, a short sale is an option for homeowners who are struggling to make their mortgage payments and owe more on their home than it’s worth. While a short sale may seem like an easy way out, it’s important to consider all your options and understand the potential consequences before pursuing this option.
It’s also important to note that not all lenders are willing to consider a short sale. If you’re considering a short sale, the first step is to contact your lender and discuss your options. Your lender will be able to tell you if you meet the eligibility criteria for a short sale and provide guidance on how to proceed.
If your lender agrees to a short sale, the next step is to find a qualified real estate agent with experience in short sales. The agent will be responsible for marketing and selling your home. They will also work with the lender to negotiate the terms of the sale.
Once you have a buyer for your home, the lender will review the purchase contract and determine if the proceeds from the sale are sufficient to cover the remaining balance on your mortgage. If the lender agrees to the sale, the transaction will proceed and the proceeds from the sale will be used to pay off your mortgage.
It’s important to note that a short sale can take several months to complete, and there are many factors that can impact the timeline, including the lender’s approval process, the market conditions, and the complexity of the transaction. It’s important to work closely with your lender and real estate agent throughout the process to ensure a successful outcome.
