Especially since the 2007 house market crash, homeowners have struggled to sell their property for more than they own on their mortgage. This could be due to a financial crisis (such as reduction in income, loss of a job or business failure), illness, relocation, divorce or death in the family, and so on! While some might mope around in failure, others desperately search for a way out of the sinking situation to avoid bankruptcy. Of course, there is a way out! And the first step is to gather the right information, explore your options and make an informed decision to see if a short sale is the right move for you and your family.
One of the alternatives to foreclosure or bankruptcy is called a short sale, but will this option work for you? What are the processes you need to follow when selling your house as a short sale property? Now that the property is affordable, what are the things you need to put into consideration when buying a short sale property? We know selling a home is stressful and, in many ways, can determine your future. This guide should simplify the process and give you a brief overview of different options and how they compare to a short sale.
Enjoy, and let us know via email or social media if we missed anything or if you have any further questions or concerns.
Like we said before, the first step to getting out of the situation is understanding your options and deciding what best suits your circumstances. The best choice for you may depend on whether you missed a payment or not, or if you have been given a foreclosure notice. Now, let’s explore some of the more common options for homeowners unable to cover their mortgage in a sale.
This foreclosure alternative is for those with temporary financial hardship. With loan forbearance, the bank may suspend or reduce your mortgage payments for a short period. If you are hit by a natural disaster, had a brief illness that led to costly medical bills, or lost your job, this option can help you catch up until your situation gets better.
To use this option, you need to ask your lender. You must be able to convince them that your financial state is just for a short period and that you will get back on your feet very soon. Your mortgage bank will not approve this unless you qualify to use this option and they are sure that you will be able to resume your regular monthly payments shortly.
Another way to avoid foreclosure is by selling your house to a fast cash investor. Investors can buy your home for an immediate cash payment but often at a low price. Their goal is ultimately to fix up the property and resell it for a profit. Each fast-cash investor will have their own specific criteria for determining the market value of your home.
Some homeowners may be very hesitant and use this as a last resort because of the low return. However, most investors will take your property “as is” and will pay for all repairs and renovations after they complete the transaction with you. They tend to take a huge risk in reselling your property and don’t mind what condition or history it has with the bank. This scenario could be a great option for you if you need to sell your home and move out quickly. Although, remember that investors are very competitive and try to sell you on a deal within a week. If you don’t have to rush, slow down and consider other options first.
This is the last option you can bank on when foreclosure is inevitable. This option allows you to give your house (deed) back to your mortgage lender and shuffle off foreclosure proceedings. This alternative usually is unavailable if there is a second lien. Before you opt for this option, you need to determine whether your deficiency balance will be forgiven or not. While DIL can help relieve you of the debt that comes with the defaulted loan, it is not as favorable as the short sale option and may have a negative impact on your future home purchase.
Most homeowners try to avoid foreclosing on their property, meaning the bank owns it and usually sells it off in an audition. Sadly, most people delay or fail to explore the available options until it is too late to try or think that there is no solution. Allowing your house to go into foreclosure will bring a negatively impact your credit for the next 7 to 10 years.
This option involves selling your house for less than what you owe your mortgage company. Homeowners that do not qualify for loan forbearance or modification would love to sell their home or cannot close a deal with a fast cash investor can take advantage of this option to avoid foreclosure. When a homeowner can no longer afford to make his mortgage payments and therefore needs to sell the house, a short sale option might be the best way to go.
Mortgage lenders are rarely eager to hop on board since they lose money on a short sale. In fact, even if they begin the short sale process, they may decide to take the house back by foreclosure to sell it later. However, that whole process is very time consuming, and they might lose money waiting for paperwork. To avoid this, lenders agree to a short sale rather than going through foreclosure proceedings.
In cases like these, the government has some incentive programs that help homeowners to pay for their moving expenses. Programs like HAFA (Home Affordable Foreclosure Alternatives) are for those who qualify for HAMP (Home Affordable Modification Program) but are not able to avoid foreclosure or get a lasting loan modification. They provide money and protection to eligible homeowners who choose to go for a DIL or a short sale.
The Making Home Affordable was another Obama-era government housing rescue plan that awards up to $10,000 to lenders if they allow a house to be sold on a short sale when the owner is not eligible for a loan modification because they owe a huge amount of money. Although the deadline to apply for the benefits expired in December of 2016, the program still offers counseling and property estimates.
If foreclosure seems inevitable, you cannot get loan forbearance, neither can you find a fast cash investor with a reasonable offer, should you pursue a DIL or a short sale? When you sell your home on a short sale, does it have any negative impact on your credit report? Does a short sale come with any benefit? Let’s address some of those questions:
Yes! Selling your house on a short sale comes with some benefits. The decision to on a short sale depends on many factors. Selling your home on a short sale is hardly ideal, but it is smarter than bankruptcy or allowing it to go to foreclosure. Below are some of the benefits of a short sale:
A short sale might not be ideal for first-time buyers as the long waits, and extra paperwork may get them frustrated. It is important to be familiar with the short sale selling process to avoid the headaches and uncertainty. This step by step short sale selling processes include:
A short sale can help a buyer to get his or her dream house at an affordable cost just as it can help the seller to avoid a full foreclosure on his credit report. But before you jump on the price listed for that property that you think is too low, you need to be well guided to avoid the pitfalls. Here’s a quick guide for prospective buyers of short sale properties:
Under normal circumstances, buying a short sale property takes a considerable amount of time to close, and you may even have to put in extra effort to complete the deal. Going into a short sale without adequate understanding can be a stressful and a time-wasting proposition. We advise having a clear knowledge of what you are getting into before you involve yourself.
You might be tempted to cut down on the cost, but real estate buying is not a DIY project! You need to find a professional short sale agent who knows the territory and can stop problems before they happen. A licensed short sale agent will help to speed up the transaction while protecting your interests.
Before you make an offer to purchase a property, take your time to research and check the public records. Your real estate agent can help you find out how much the seller owes to the lenders and if the seller has been served a foreclosure notice. This information will help you determine the right amount of money to offer for the property.
The house may not be properly maintained if the seller is in financial distress. The seller may not be willing to disclose the serious maintenance issues, and the buyer will be asked to buy the house “as is.” You need to proceed with care and allow an expert to inspect the property before you commit.
The moment a seller accepts your offer, the listing agent will send it to the seller’s mortgage company for approval. And, until they approve your offer, you do not have a deal. The mortgage company will love to see your proof of funds, your earnest money deposit or pre-approved loan. They may then ask you to increase the price. After you submit the documents and the purchase offer, give them a time frame to respond.
A short sale can work for you if you go about it in the right way. Even though it can take a considerable amount of time to complete, it can be beneficial to both the sellers and the buyers. However, every homeowner’s and buyer’s situation is different. So speak with a real estate attorney or short sale professional today and get the advice you need on the short sale of a home, as well as the legal and tax implications for your situation.