Will a Short Sale of Your Home Work for You?

A short sale is something that you may consider if you are finding that making your mortgage payments is next to impossible. The goal of such a sale is to prevent homeowners from having their homes go into foreclosure.

A short sale is something that you may consider if you are finding that making your mortgage payments is next to impossible. The goal of such a sale is to prevent homeowners from having their homes go into foreclosure.

A real estate short sale may be something worth considering if your financial situation is very bad. What happens in a short sale is a home is sold for a lesser price than what is owing on the mortgage. One of the biggest advantages of a short sale over foreclosure is that you will not have to file for bankruptcy and therefore you will not have to relinquish the credit you presently have. Your credit will be affected but not nearly as badly as it would be if you filed for bankruptcy or lost your home to a foreclosure.  

If a house is sold in a short sale then it is not purchased by the financial institution (because it is not a foreclosure) but instead by a regular individual or family who are looking for a house. All of the money from the sale goes to the bank however. The homeowner does not receive any of the proceeds. The bank will then even forgive the financial difference and let the matter lie or it may go for a deficiency judgement against the former homeowner.

A deficiency judgement is when the borrower is expected to pay the financial institution from which the mortgage originated (i.e. the lender) all of the money or a percentage of the money that makes up the difference between the mortgage’s value and the amount the house was sold for. This does not make a lot of sense because the homeowner would not have decided to do a short sale if they could afford to continue to pay their mortgage. Some states do forgive the difference whereas others are adamant that the borrower is still responsible for the money that they owe on the mortgage.

Will a short sale of your home work for you? For many homeowners the thought of a real estate short sale is as upsetting as the thought of foreclosure proceedings. Before you come to the conclusion that it is your only viable option you should get in touch with your lender and try to come up with an arrangement that will be suitable. Two options you might want to look at include a revised payment plan or loan modification. If you can find an option that allows you and your family to not have to vacate your home then this should help to ease your financial burden, not to mention the stress it is putting on the entire family.

To be eligible for a short sale you must satisfy certain requirements. You must have suffered a hardship that has exacted a cost on your financial circumstances. Examples of this include a divorce, loss of employment or a medical emergency. If you owe more on the house than it is worth then you may be eligible as well. You also may qualify if you are not able to meet your monthly mortgage payments and if you are not able to alter your present home loan in any way.    

Many people worry that their credit will be negatively impacted by a short sale. As previously mentioned, your credit will be affected in a less than positive manner. However it is very likely that you will qualify for financing for another house sooner down the line than you would have if you had chosen to go the foreclosure route.