Buying your dream home is a huge milestone in many people’s lives and can be a great investment. However, the unexpected can happen anytime, leaving you in a financial crisis.
Many homeowners don’t understand that a short sale is an option that allows people to avoid foreclosure and get out from under a mortgage they can no longer afford.
The short sale of a house can be a very challenging process if you’ve never been through it before. But learning about the process is easier than you think; you just need to take the time to do some research.
Keep reading this guide to learn everything you need to know about having a short sale.
What Is a Short Sale?
A short sale is a real estate deal where the mortgage lender agrees to accept an offer less than the mortgage payoff amount.
A short sale occurs when the original owner is in financial distress and needs to sell the property before it goes into foreclosure.
All proceeds from the short sale go to the lender. After this, the lender can forgive the remaining balance or file a deficiency judgment. A deficiency judgment occurs in court and involves a motion against the debtor who defaulted on the loan.
This varies depending on your state, so you’ll need to get the details about this process first.
Next, knowing the difference between a short sale and foreclosure will help you better understand how short sales work.
Short Sale vs. Foreclosure
Some people confuse short sales and foreclosures. With a foreclosure, the lender will seize your home after you fail to make payments. The lender initiates the foreclosure without the homeowner’s involvement and will evict the homeowner if necessary.
The goal is to repossess the home and try to make a profit on the investment. Once the lender has the home back, they order an appraisal and put it back on the market.
Foreclosures take less time than short sales since lenders must liquidate any assets as soon as possible. You may even see foreclosed homes auctioned off at public trustee sales or another type of auction.
How Does the Short Sale Process Work?
Now that you understand more about what a short sale actually is, it’s time to look at the process you’ll need to go through.
Talk to Your Lender
Your first step in this process is to discuss your situation with your lender. You’ll need to discuss the possibility of a loan modification or revised payment plan, allowing you to stay in your home while you recover financially.
Take the time to speak with your lender about any alternative solutions. However, be mindful of what the lender suggests and make sure you can afford to pay long-term.
You must convince the lender to agree to a short sale if nothing else is an option. It’s important to realize that your lender isn’t required to allow you to make a short sale.
In most cases, you’ll need to have sudden financial trouble related to something specific, like a divorce, job loss, or a serious health problem. You’ll need to show documents that prove financial hardship. These documents include:
- Medical bills
- Pay stubs
- Termination notice from a job
- Divorce decree
- Bank statements
Additionally, many lenders won’t consider a short sale unless you’re at least 2 to 3 months behind on mortgage payments and in default. Some states also won’t allow lenders to approve short sales if you file for bankruptcy.
You must also show that your home’s value is less than your mortgage balance. Finally, you may be able to convince your lender you’ll soon be in default even if you’re making your payments for now.
Overall, having this conversation and figuring out the details is the first major hurdle in this process.
Consult the Professionals
The last thing you want to do is to try to navigate through a short sale on your own. The entire process can become complicated, especially if you don’t understand the rules and regulations.
While it may seem like a big cost to pay upfront, you can easily find yourself in bigger financial trouble if you don’t get help from the pros. Ultimately, it will cost you more in the long run.
First, consulting with a short-sale attorney is a good idea. Short sale attorneys know the ins and outs of short sales and can protect your rights. A tax professional can help you understand how a short sale will impact your tax situation at the end of the year.
A real estate agent can help you understand the housing market by doing a comparable market analysis. They’ll also compare your home with sold, pending, and expired listings to ensure you have the right sale price for your home.
Set an Asking Price
Your real estate agent can set an asking price for you after a thorough analysis. It’s crucial to factor selling costs into the total amount you must get from the sale.
Ideally, you’ll want to sell your home for as close to the mortgage you owe as possible. Unfortunately, you can’t always control the market; people often sell for less than they owe.
This causes a shortfall or a financial obligation that exceeds the amount of available cash.
In some states, your lender will expect you to pay back the remaining amount after the short sale.
Find a Buyer
Having a buyer lined up can increase your chances of convincing your lender to allow a short sale.
There are a few ways to accomplish this. First, you can have a real estate agent list your home and wait for potential leads. Real estate agents have extensive knowledge of the area and can help you find the right buyer.
You can also take matters into your own hands and look for companies like memphis.webuyhouses.com that make cash offers on homes.
Selling homes for cash is becoming increasingly popular and is certainly an option to consider.
Learn More About the Short Sale of a House
Knowing the basics about the short sale of a house will help you feel more confident in taking the next steps.
If you’re in a financial situation where a short sale makes sense, it’s essential to talk to your lender as soon as possible to learn more. Doing more research and talking to a short-sale attorney is also wise.
They can help you negotiate with realtors and lenders to ensure the short sale goes smoothly.
To learn more business and educational tips, be sure to read the rest of our blog articles.
