Short sale FAQ’s

Due to several economic conditions: rising unemployment, a fall in home prices and an increase in the number of homeowners unable to pay their mortgages – many homes are falling into a new category called short sales.

Here are some FAQ’s on short sales that every potential buyer or seller should know:

What is a short sale?
According to the National Association of REALTORS® a short sale is defined as “a transaction in which the lender (or lenders) agrees to accept less than the mortgage amount owed by the current homeowner.” In other words, a short sale occurs when the homeowner owes more on the home than it is worth.

How is a short sale different from foreclosure?
Foreclosure is the process in which the property is seized by the lending institution. A foreclosure occurs when a homeowner defaults on the loan that they are unable to pay due to deteriorating finances. The process of foreclosure varies from state to state, but generally begins with a Notice of Default issued by the lending institution after the homeowner has been three months delinquent on a mortgage payment. To avoid a foreclosure, which dramatically reduces a homeowners’ FICO credit score, many homeowners will attempt to sell their property as a short sale.

How does a homeowner qualify for a short sale?
The homeowner must have financial proof that they are upside down on the mortgage. They must demonstrate a financial hardship and prove their insolvency. This includes W-2 forms from the employer, bank statements, two years of tax returns and other paperwork indicating income and debt obligations.

Are there disadvantages to a short sale?
Yes. Your credit score will be reduced by up to 200 points once reported to the credit bureau. The short sale process is long and arduous, and many sellers’ submissions for short sales are declined by the lending institutions due to lack of proof of financial distress. Keep in mind that because of current economic conditions and the amount of distressed properties flooding the market, lenders are incurring a very large inventory. They are scrutinizing every short sale submission for any reason to deny the request.

Are there advantages to a short sale?
The simple answer is yes. Short sales are almost always a better option over foreclosure. First, you avoid having your home seized by a lending institution, and, second, you preserve most of your credit score. For buyers, a short sale could be a great opportunity to purchase a bigger home for less money. Be aware, though, the process of purchasing a short sale is generally more difficult and takes longer than a traditional home.

This information is only a brief overview of a short sale. Whether you are buying or selling, if you think a short sale might be an option for you, know the advantages and disadvantages of a short sale and get with a realtor immediately to explore your options.

Source: www.realtor.org

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