The Need-To-Knows Of Short Sales
Youre in deep financial trouble. For one reason or another, the amount your home was worth has gone down, or your mortgage payments have gone up to the point where the amount left on your mortgage is more than how much your house is currently valued at
. The only option seems to be foreclosure, but dont give up just yet.
You can still settle your home through a short sale. That way, you dont have to worry about paying the amount youd owe were you to keep your house. But what is a short sale, how do you do it, and can it save your home?
SEE ALSO: The Foreclosure Timeline
What Is A Short Sale?
A short sale occurs when a property sells for a lower price than what the homeowner owes on the mortgage
and the homeowners mortgage lender consents to short payoff. A lender might accept a short sale for a variety of reasons. Namely, if the home is worth less than the balance on the mortgage or the borrower cant make payments anymore, cant pay back the full loan balance, and needs to move out.
Its important to note that the mortgage lenders approval is required for this sale to go through
. This is because the lender will be receiving less than the borrower initially agreed to pay on the loan. The lender also has to decide which is more advantageous: a short sale or a foreclosure on the property. Based on that decision, your application for a short sale might or might not go through.
How Do You Perform A Short Sale?
After deciding on a short sale, the seller must first prepare a financial package for submission to the bank
. This package usually includes:
- A letter of authorization, allowing your agent to speak to the bank
- HUD-1 or preliminary net sheet
- Two years of tax returns
- Two years of W-2s
- A months worth of payroll stubs
- Completed financial statement
- A sellers hardship letter
- The last two months of bank statements
- A market analysis of comparable sales
The seller then puts the home on the market. A buyer can then place a short sale offer on the house and submit it to the bank. Before doing so, however, he or she should look at comparable sales in the area. The closer to market value the offer is, the more willing the bank, and the seller, will be to accept it
. If the seller accepts the offer, the listing agent sends in:
- A listing agreement
- The purchase offer
- The sellers short sale package
- Buyers preapproval letter
- Copy of earnest money check and proof of money
This package must be 100 percent complete or risk being ignored by the bank.
Then begins the waiting game. The parties involved must wait a very long time before receiving a response from the bank. The process of approval can take anywhere from two weeks to about 120 days
. Once the bank gives the OK, the house is sold and the process ends.
SEE ALSO: Advantages To Getting A Mortgage Preapproval
Is A Short Sale Right For Me?
Both buyers and sellers involved in the short sale process must exhibit tremendous patience. Otherwise, the sale might not go through. The biggest danger to a short sale are threats from the buyer.
He or she might be tempted to try and give the bank a deadline for their decision. More often than not, these threats make the situation worse.
If your home is about to be foreclosed upon, however, this might be your best option. Talk to a lawyer about your options
before applying for a short sale. You might be glad you did.