Beginner's Guide to Buying and Selling a House Through Short Sale
The short sale process can seem intimidating, yet getting a handle on the steps can make it a lot less scary and help home sellers navigate a difficult financial situation without too much damage.
How is a short sale different from a foreclosure, and what are the advantages and disadvantages of a short sale? Let’s get started. Short Sales vs. Foreclosures Before we get into the process, let’s go over the difference between a short sale and a foreclosure. What’s a Short Sale? A short sale is when the proceeds of a property sale fall short of the balance remaining on the property’s mortgage loan. In other words, the seller owes more on the property than what he or she is selling it for. The mortgage lender (referred to as the “bank”) also has to agree to discount a loan balance or to take less money than what’s owed. Typically, the owner needs to prove financial hardship before a lender accepts a real estate short sale deal. A short sale is an alternative to foreclosure and may be an option if:
You are ineligible to refinance or modify your mortgage
You are facing a long-term hardship
You are behind on your mortgage payments
You owe more on your home than it's worth
You have not been able to sell your home at a price that covers what you still owe on your mortgage
You can no longer afford your home and are ready or need to leave
What are the benefits of a short sale?
Eliminate or reduce your mortgage debt
Avoid the negative impact of foreclosure
May be eligible for up to $3k in relocation assistance in some cases
Start repairing your credit sooner than if you went through a foreclosure
May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (up to 7 years)
What’s a Foreclosure? In a foreclosure situation, the owner stops making payments and in some cases, vacates the property. Typically, it can take several months of missed payments for a foreclosure to be initiated by the mortgage lender, but the lender eventually has to take the property over and try to sell it on their own. Even though this isn’t the ideal situation for the owner either way, a short sale is a much better option than going into foreclosure because a short sale typically doesn’t hurt the owner’s credit score as much as a foreclosure would.
Why Would a Lender Agree to a Short Sale? This is a very good question. Why would a lender agree to accept less money than what’s owed on the mortgage? This is exactly what happens with short sales. First, a bank is not in the business of selling houses, they are in the business of selling loans. In a foreclosure, after the lender takes control of the property, the lender has to put the house on the market which could take months before a house gets is sold.
Foreclosure is a very expensive process, and it’s one of the reasons why lenders would rather approve a short sale than go through with a foreclosure.
The Short Sale Process Purchasing a short sale property can be a win win for both the seller and buyer. The buyer can get a great deal because they can get it for a lower price than they typically would in a regular transaction.
The seller wins because they avoid foreclosure and sell their house without paying for real estate commissions and other cost related to a real estate sale.
There are some things about the short sale process that you should know before rushing out to find a property. Because the lender is agreeing to sell the property for less money than it would take to pay off the loan, you essentially have to put an offer in and have it be accepted by the lender. Because you have to get approval from the current homeowner’s lender and then take the final agreement back to your own lender to secure funding, it can also be a lengthy process.
There’s no real time frame that can accurately describe how long a short sale approval takes because it differs greatly from lender to lender and case to case. It can be helpful to work with an experienced real estate professionals because they’ll be able to help you navigate the process of putting an offer in and act as the go-between for you when communicating with your lender, the seller’s lender, the seller and any other relevant parties. You’ll also want to get a pre-approval for a mortgage of your own. This will give the seller’s lender confidence that your offer is serious and that you’ll have the funds available to back the offer up.
Getting Assistance with the Short Sale Process
Although going through a short sale or foreclosure can be very stressful, it will help if you are dealing with professionals who are familiar with the process. We have professionals on our team who specialize in short sale and foreclosure and is certified as Short Sale and Foreclosure Resource®.
We can help in assisting you through this challenging process. Give us a call for a free confidential consultation at (847) 238-2444.