Is A Short Sale Good For You?

Short sales have become more and more common as a result of the recent housing downturn. It has been shown that a growing number of homeowners now owe more on their mortgage than their home is worth. This financial situation may only become an issue if the homeowner encounters a difficulty such as a loss of income or increased mortgage payments due to interest rate changes or increased escrow payments. These circumstances can put homeowners in a no win situation because they cant sell their home for enough to pay off their mortgage. This is where a short sale might come into the picture.

A short sale occurs when the homeowners mortgage lender agrees to accept less than the current mortgage balance as payoff for the loan in order to get the home sold. Often, lenders will see this as a less expensive alternative to the often long and pricey process of foreclosure. In order to qualify, borrowers must demonstrate their inability to make monthly payments by submitting bank statements and other documentation to their lender. After these submissions, the bank will do an appraisal to confirm the home cannot be sold for the mortgage balance. Borrowers can also be asked to repay a separate loan for any losses incurred by the bank.

Home buyers, on the other hand, may see this situation as an opportunity to get a great deal on a house. While this may indeed be the case, there are also some pitfalls of which to be aware. First, short sales often take a long time to complete since the bank must complete their review of the current borrowers financial situation and determine the homes value before a short sale offer can be considered. Next, overwhelmed loss mitigation officers may be working hundreds of files, so a response on an offer could take weeks or possibly months with no assurance the offer will be even be accepted. In addition, banks are typically unwilling to make repairs to the property, which may be a condition of loan approval for the new borrower, thereby dooming the transaction.

Homeowners in a bind might want to first explore options for modifying their mortgage through a mortgage lender before resorting to a short sale. The government has established new guidelines for modifications that might include interest rate reductions, an extension of the mortgage term, or a deferral of payments. Home Loan Specialists can assist with this effort. If a short sale appears to be the best option, a homeowner should seek out a real estate agent with experience in these transactions.

Home buyers should be aware of the extended time frame needed to complete a short sale transaction and may want to get pre-approved for a mortgage like an FHA 203k program that allows the buyer to roll repair costs into their mortgage if repairs appear necessary.