Short Sale: Alternative To Foreclosure
A short sale is when a mortgage lender gives permission to a homeowner to sell their home below what they owe on their mortgage loan. Short sales need mortgage lender approval and not all homes underwater qualify for short sales. The homeowner needs to prove financial hardship and prove to the bank that they can no longer able to afford the mortgage payments due to an economic event such as job loss or business loss or a substantial reduction of household income. A short sale is an alternative to foreclosure and can save the stress, time, money, and embarrassment of a regular foreclosure and sheriff’s sale.
What Is Required For A Short Sale Request
You need to obtain permission from your mortgage lender to get a short sale approved. The first thing your mortgage lender will most likely require is a detailed letter of explanation of why you are seeking a short sale. Along with the letter, you should attach all supporting documents such as a termination letter from your employer if applicable, 2 years tax returns, 60 days or more of bank statements, 2 years W-2s, recent paycheck stubs, financials, proof of reduction of income, and other supporting facts to prove your financial hardship and why you can no longer afford your mortgage payments. If you have a third party representative such as an attorney or short sale consultant, then you need to provide a letter of authorization which will authorize your representative to represent you. You should also provide an appraisal or a comparable market analysis to provide the mortgage lender the tentative market value of your home. The mortgage lender will try to minimize their loses but yet price it reasonable so they can get a fast sale. The mortgage lender will try to get as close to the market value as possible and will not be apt to be giving the property away. Once the mortgage lender approves the short sale, you can now list your property with the realtor of your choice.
Short Sale: What Next?
Once you have listed your property with a realtor and you get an offer, you need to provide the purchase real estate offer to your mortgage lender along with the home buyer’s pre-approval letter and a copy of the earnest money check. Once the mortgage lender receives the purchase contract, the mortgage lender will review the contract and either accept the offer or come back with a counter. Most mortgage lenders are slow and this process can take longer than those of private sellers.
Short Sale Mortgage Lender Process
Short sales take normally longer than regular real estate transactions from private parties due to the red tape with getting the mortgage lender’s approval. Once a home buyer signs a purchase contract, it can take over a week or more for the mortgage lender to get a counter offer or a signed purchase contract.
How Devastating Is A Short Sale For The Homeowner?
A short sale will definitely plummet your credit scores but the good news is that the drop of credit scores is just temporary. You should start rebuilding your credit from the date of the short sale and start adding positive credit. Get three secured credit cards with $500 credit limits and use them frequently and pay them off every month, just leaving a $10.00 balance on them. A short sale will plummet your credit scores as much as 200 FICO points but the good news is that your credit scores will increase as your short sale increases. You can purchase another home after you have a short sale.
Qualifying For Mortgage After Short Sale
If you are current on your mortgage payment until the date of your short sale, there is no mandatory waiting period for you to qualify for another mortgage loan. If you are delinquent, there is a two year mandatory waiting period from the date of your short sale to qualify for a conventional loan if you have re-established credit and can put 20% down payment. You will qualify for a FHA insured mortgage loan after 3 years from the date of a short sale. You can qualify for HUD’s new FHA Back to Work Extenuating Circumstances due to an economic event one year after a short sale if you have been unemployed or underemployed for at least six months prior to the initiation of the short sale which has resulted in the reduction of your household income by at least 20%.