Short Sale Decision
Short sale, the words are fast and easy to say. The emotions to short selling your home are anything but fast and easy. The decision to short sale your home comes after a long and difficult process.
Sometimes the facts help with a difficult decision. A real estate short sale is an agreement between bank or mortgage lender to discount a loan balance due to an economic hardship on the part of the mortgagor. In clear terms a short sale is a deal between a person with a real estate loan or mortgage to sell the house for less than the owed amount.
An example is if a person has a home mortgage for $450,000.00. And the home owner can no longer make the loan payments, the loan holder (bank or mortgage lender) agrees to let the home owner sell the house and take the sale price to satisfy the loan. So if the house sells for $300,000.00 the loan holder takes that amount. In this example the loan holder would lose $100,000.00 plus any fees and costs to do the short sale.
Banks and mortgage lenders will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.
For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Also the large payment is removed from the household budget.
In short, a short sale is nothing more than negotiating with loan holders to pay off a loan for less than current balance.
Real estate short sales help all the parties involved in the transaction. The seller is relieved of the home they cannot afford. The lender avoids costly foreclosure proceeding. The buyer purchases the home at an attractive price.
A home short sale is usually more acceptable for a homeowner than losing a home through foreclosure. Short sales and deeds in lieu of foreclosure are also being encouraged by certain mortgage-related government-sponsored entities such as Fannie Mae.
What happens to a homeowner’s credit when they short sale their house? While it is up to the individual lender to decide what to report, what often happens is the loan will be reported as "paid" on the credit report. This can be either good news or bad news. The credit report will likely have a reference that says "settled for less than originally owed" or something similar. It is certainly more helpful to have the short sale referenced than to have a foreclosure on their credit report. The sellers in a short sale may be able to qualify for new loans in as little as two years.
A real estate short sale characteristically is done to prevent a home foreclosure. Frequently a bank will choose to allow a short sale if they believe that it will result in a smaller monetary loss than foreclosing. Lenders have a department typically called a loss mitigation department which processes possible short sale dealings. Lenders have a varying tolerance for short sales and mitigated losses. The lender will proceed with a short sale only if they feel like it is the best option for them. Therefore the real estate short sale benefits the lender because it is the best option for the situation.
Buyers looking for a new home or real estate investment typically like short sale properties. They are possibly going to get a better price on a short sale property than a traditional real estate purchase. The lower price comes with a hidden cost of time and other issues that could add to the final real price. One issue buyers of short sale properties should note is the condition of the house. The buyer should understand what they are getting for the price.
Selling a house with a short sale is no easy thing. There are many questions. But there are many benefits to short selling a house.
Debt Forgiveness is one of the biggest paybacks of a short sale. If the short sale is approved, then the loan balance usually has the remaining debt forgiven. This amount of debt forgiveness could be a few thousand dollars or over a hundred thousand dollars.
The credit impact of a short sale is much less than a foreclosure. If a borrower is current, the effect to your credit could be minimal. Removing such a large debt from your credit report can be a positive event. But if a borrower is behind on the mortgage payments, the fact that the sooner you sell the house and remove the delinquent payment history, the quicker your credit will improve. Being behind on the mortgage payment is where the bulk of the negative credit issues arise.
The seller in a short sale could be eligible, under Fannie Mae guidelines, to buy another home in as little as 2 years. If the house is foreclosed, it could take 5 to 7 years at the earliest to qualify for a new mortgage. Also, if the credit report does not reflect a 60-day or longer late payment, the borrower may be able to qualify for a new loan under Fannie Mae guidelines. This means a home short seller may be eligible to buy another home immediately.
There is no question that a short sale is a more dignified method to selling a home versus a foreclosure. You retain some decorum in knowing that you sold your home. You made a good financial decision versus having a bank take your home to a foreclosure auction.
The two questions to ask regarding real estate short sales are. Do I need to sell my home? And do I owe more on my home than it is worth? When you know the answers to these questions, then you will know if doing a short sale is worth it.
If you need personal help with the decision to shot sale your house please call 916 481 8106 Dan Parisi Sacramento area Realtor for free consult.
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