What Is A Short Sale?
A short sale is a type of sale where the lender agrees to settle for a mortgage amount lower than the balance owed so that the property can be sold to avoid slipping into foreclosure. This sale is done by homeowners who are struggling financially and can no longer afford to make their monthly payments. Their lender will then forgive the rest of what is owed. A short sale can only progress with permission from the lender, on a property whose value has gone down, and when an owner owes more than the property is worth. This is also known as being underwater on a mortgage and it means that equity is no longer positive, and the owner is operating at a loss.
Are Short Sales A Good Option?
From a seller’s perspective, opting to go forward with a short sale to avoid foreclosure is the best-case scenario. The impact that a foreclosure has on your credit is much more damaging than that of a short sale. A short sale means that you can walk away from the burden of a property you cannot afford with no debt; however, you will have some trouble moving forward when it comes to securing a new place in your name. From a buyer’s perspective, they get to purchase a property for a very low price. However, a short sale will probably come with some issues that need to be addressed in order to make it an ideal living space. On occasion, a lender will request that the new buyer pay closing costs that would typically be the seller’s responsibility. For a buyer with some extra cash, this could be a good investment. From a lender’s perspective, they lose a decent amount of money, but often not nearly as much as if it were a foreclosure.
The Process of Purchasing Via Short Sale
There are a few rules you need to know when it comes to buying a short sale. It may not be as easy of a process as you initially think. First, in order to move forward, the lender has to approve the short sale. Typically, the seller would take the funds made from a sale to settle their original loan balance, however, this is slightly different. Since the lender will be forfeiting a portion of their money, they must be on board before the seller is allowed to continue with the sale. Second, a short sale should be a final option after you have exhausted every other potential option. The seller has to show evidence that they are truly unable to continue paying their mortgage. The lender will usually not want to go into foreclosure, so they will have no issue allowing the short sale in this case. Third, the property has to be priced to match the market. While short sales are done on homes that have decreased in value, the price still needs to match the current market. The last thing is that a short sale cannot be confidential; the seller has to let any potential buyers know what they are getting into. They need to know that the asking price is less than what is owed on the home and that they will have to discuss terms with both the seller and the lender.
It Is Not Often A Quick Process
While there are instances where a short sale can be finalized in less than a month, they are usually much lengthier. There is much more involved in a short sale than a typical one. The lender has to take some time to consider whether or not they even want to go through with it, and even then, they might not if they decide a foreclosure will save them some money. If you wish to do a short sale, a good way to make the process a bit more efficient is to seek out a real estate agent who is well-versed in this area. Not every agent will have experience with this. Having an agent who knows about short sales will give you a major advantage and help you close much quicker. Short sales can be a great option for homeowners facing hardship who have no way to pay their mortgage. While a short sale will impact your credit, the hit will not be as detrimental as a foreclosure and lenders are often more than willing to avoid having a property go into foreclosure as well.