Having a home to call your own is the pinnacle of the American Dream. From our earliest memories we plot, plan, and devise ways to find the ideal place to put down roots. Sadly though, once you’ve signed your name on the dotted line the idea of living happily ever after is not always the end of the story. With the tumultuous rise and fall of the economy many homeowners have found themselves over their heads in debt and have been forced into a position where they may have to consider selling their property.
Still, with the difficult trend of real estate in recent years many have found themselves unable to sell at a price where they can make a profit or even break even. This is the time when they may seriously need to consider doing a short sale.
What is a Short Sale?
A short sale is a transaction where a property is sold for less than the balance remaining on an existing mortgage. The term ‘short sale’ can also apply to the sale of property where there is more than one mortgage due. It could cover all the debt that is owed on a first mortgage but not the second or third. In short, it is a sale that will not completely cover all the debt or expenses that may be involved with any piece of whatever property you own.
What is Required?
It is important to understand that not all properties will qualify for a short sale. This type of transaction requires an agreement between both the seller and the mortgage holder before it can be accepted. From the perspective of the lending institution, they must be able to see that the sale will be in their best interests. For example, if the bank is looking at the possibility of a foreclosure they will be forced to pay a considerable amount in fees that they may not be able to recoup. Having a short sale instead may allow them to retain some of those expenses making it a much more profitable deal in the end.
Why a Short Sale?
While short sales have proven to be very beneficial for property owners they are not always the best choice for everyone. Many people who choose to do a short sale have not been able to build up any equity in their home. For that reason they usually end up owing much more money than the home is actually worth. These are the ones who could benefit the most from a short sale.
Many have the mistaken idea that if their home has dropped in property value that they qualify for a short sale however this is not always the case. Those who have equity built up in their homes of any kind cannot qualify. These types of transactions can only apply to those where after the sale is completed, the costs of commissions, title fees, recording fees, and any other additional expenses are not fully covered there is a balance remaining. This could happen in a number of different ways.
Other people choose this type of transaction just for the benefit of peace of mind. Often once the sale is completed, the mortgage holder forgives the remaining debt. If because of a loss of employment or other circumstances that may have imposed a financial burden makes it impossible to meet the payment obligations, a short sale gives you the opportunity to get out from under the stress that these bills may create.
You could also avoid a nasty foreclosure showing up on your credit report. This means that once you have been able to recover financially that your credit will not have to suffer the many problems and challenges that come from poor credit.
What Types of Properties Qualify for a Short Sale
It is also important to consider the types of properties that can qualify for a short sale. There are in fact, a number of separate qualities that a property must have before it can be considered for a short sale. Each of these are based on the hardship created if the property were not to be sold.
The most common qualification is when a home is considered to be underwater. An underwater home is when the purchase loan on the property is at a higher balance than its actual market value. This type of situation requires that the homeowner take a loss out of his or her own pocket. Under these financial circumstances the homeowner would be unable to refinance the property and if unable to cover the mortgage payments will be forced into foreclosure.
Short sales are also possible for homeowners who are experiencing severe financial hardships of some kind or another. Homeowner hardships usually apply to those who have lost their jobs or other sources of income and are suddenly unable to make payments or those who may have been subjected to a prolonged illness or disability that has kept them from building up an income sufficient enough to cover their monthly expenses.
Whatever type of hardship you’re experiencing checking with a willing short sale bank may be the perfect way to provide relief from the burden of high mortgage costs that you’re dealing with.
How to Know You Need to do a Short Sale
The idea of doing a short sale is probably obvious for those who are facing foreclosure but it may be wise for a homeowner to take action well before that happens. The mere fact that short sales can protect your credit rating may be enough to give serious consideration to your decision. However, there are also other factors that you need to weigh as well.
It would be well worth your while to talk to real estate experts, legal professionals, and your financial institution so that you can weigh your options thoroughly. While short sales offer a lot of promise there are also some drawbacks that you must think about too. Getting sound advice from those who work with this type of trading situation may be the most important step you could possibly take in securing your financial reputation.