Short sales are when your home is worth less than it is worth.
Your lender must approve a loan to be shortened. Your lender will not accept anything less than the amount they owe at closing. You can shorten your mortgage for many reasons.
A short sale allows buyers to buy property at a reduced price. The seller is in financial distress and has few options. A short sale may take some time so patience is key. We will discuss short sales for sellers and buyers.
What does short sales mean for sellers?
Short sales are an option for homeowners who have underwater mortgages. They can sell their house and avoid foreclosure.
Many homeowners in financial distress have the option of short sales as an alternative to foreclosure. These are the steps sellers need to take in order to sell their property in a short sale.
- You must show proof of hardship if you owe more than the house will sell for. You will need to prove to your lender that you are in financial hardship before you can list your house. The most common cases of hardship are when your income is not sufficient to afford your home or you need to move because of a job obligation. When your hardship case is being reviewed, your lender will review your assets and income. If your income-to debt ratio has increased, you will receive short sale approval. To reduce the loan repayment loss, they will ask you to contribute any money that you have. You will also need to submit a market analysis, and identify any liens.
- After the lender approves the short sale, you can contact a real estate agent to list your property. All offers must be submitted to the lender for approval. The approval process can take from two weeks up to several years. If you have a second mortgage, the approval process may take longer. Each lender must agree to each other’s terms.
- Lenders approve the sale of property. After reviewing the offer, lenders will decide if they approve or deny it. Once the buyer has accepted the offer, the short sale can be closed.
What happens after closing for the seller?
After you sell your property, your credit score could drop anywhere between 75 and 200 points. This is typically less severe than a foreclosure. Experts estimate that a foreclosure could lead to a decline in credit scores of 200-300 point.
Lenders will not approve the short sale of your property if your payments are more than two to three months late.
Your credit score will fall to the top end of the range if this is true. Lenders will either report the short sale as “settled debt” (or “paid debt”) This will affect the extent of your credit score decline. Negotiate for the former. The former is less common and can have a greater effect on your credit score.
A short sale will stay on your credit report for seven years. You can still finance your new home purchase in one to four years, depending on your credit score and loan type.
Foreclosure is more serious. A foreclosure can take up to seven years. For advice, ask your lender. The loss of the lender was considered income before the housing crisis. Short sellers are exempted from tax.
What does short sales do for buyers?
Buyers who are looking to purchase a property at a discount price may consider a short sale. The transaction will take longer than selling a regular home.
These are the steps a buyer should take to purchase a property that is for sale quickly.
- Preapprove for a mortgage. A short-sale property can be purchased in the same way as a home. The lender will preapprove. They will tell you how much you can afford, how much you need, and what your monthly expenses are.
- Look for properties. Your agent will be able to tell you how much the seller owes, and what loans they have. You should also confirm that they have been approved for loans by their lender.
- Make an offer: A short sale is exactly like any other property. It might take longer so be patient. Your agent can help you calculate fair market value by comparing properties in the area. You’ll then write your offer price.
Lock in Your Rate
It is not always easy to lock in a rate for a short-sale home. The lender will often require that you apply for a loan to ensure you are qualified. But, they can’t force you to apply for a loan.
Most rate locks last between 30-60 days. However, it is possible that the seller’s lender will take many months to approve your offer. Your rate will not be locked immediately. Ask your lender about the rate outlook and how it might affect your final terms.
Get the sale moving forward
While you wait for the lock, you will need to transfer the loan process in order to purchase the property. As the lender may require, you will need to inspect the property and appraise it. You will need patience. These steps will ensure your seller’s lender approves your short sale and that your loan can close quickly.
Short sales are more time-consuming than normal, so it’s a good idea to do everything you can to make them happen. Short sales should be well understood by your lender and agent. They can assist you in understanding the process.