What is a short sale and how is it better than foreclosure?
Short Sale Overview
What is a Short Sale?
Let's say you're selling your home but the offer you get is super low, it won't cover the total amount you owe on your mortgage, but you need to sell it, so you just take it. This is a short sale, you don't get the amount you need to pay back your lender, and your lender agrees to accept less than what is owed on the loan.
Most of the time homeowners are pushed into a short sale because they cannot pay their monthly mortgage to their lender, and at the same time, it's hard to find a selling price that would allow them to pay the amount of their entire loan-especially if market trends lowered their home value.
The Short Sale Process
In order to get a bank to consider a short sale, you have to be late on your mortgage and show financial hardship. Then you have to sign a real estate broker listing/marketing agreement (must be turned in to the bank) and get the house on the market with a real estate broker and attempts to sell the property at the balance owed. After these steps, your real estate broker will market the property at the current real estate market value to receive a market value offer that he or she will submit to the bank for approval.
What is the benefit in doing a short sale vs. foreclosure?
A foreclosure is when the homeowner falls so behind on the mortgage and the lender repossesses the house, often against the homeowner's will, then tries to sell it. Unlike short sales, a foreclosure negatively affects a persons credit score and credit report. As a result, people that undergo foreclosures normally have to wait 5 years or more before they can qualify to purchase a new home. It benefits the homeowner if they can talk to their lender to do a short sale instead of going down the road of a foreclosure.
- A short sale gives a homeowner more time to stay in the home until the sale is finished. Foreclosures force homeowners to vacate.
- In a short sale, the seller won't pay the real estate agents commissions and closing costs, the lender or bank pays the bill