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Short sales are essentially the sale of a home below the actual amount owed on it. For sellers, this is an alternative to a foreclosure. It allows them to get out of a home with negative equity. For buyers, this can be a great deal that will usually get them a home with instant equity. Understanding a short sale and how to properly complete one will allow you to take advantage of an increasingly popular alternative to a foreclosure.
Selling a Home in a Short Sale
If you own a home and owe more than it is a worth, a short sale may be an option for you. It will negatively impact your credit for about three years, but will be a lesser blow than a foreclosure or bankruptcy. You must get the lender to agree to the short sale in order to proceed. First, you need to call the lender and explain your situation. Often, you need to be in some sort of hardship to qualify. You will have to submit a hardship letter to the lender. This should be an explanation of why you are now unable to pay; a reason may be, for example, job loss, the death of a spouse or illness. You will need to provide the lender with bank statements and proof of any assets or other real estate. The lender will likely not approve a short sale if you have large amounts of cash or investments. You will need to provide them with a breakdown of how much you can sell the home for and what the loss will be after fees and closing costs. Then the lender will decide whether to approve the short sale. Once it is approved, you can list the property and provide the lender with the listing details.
Buying a Home in a Short Sale
Buying a short sale property can be a great deal financially but also can be a huge headache. If you are willing to do the work, and don't mind waiting for a long closing, then you can score a great deal. First, be sure your real estate agent has experience in short sales. An agent who has never done one will not know how to properly handle it. Then, get pre-approved for a mortgage. Once you have that letter of pre-approval, you can make an offer on a home. If the seller agrees to the offer, then it is submitted to the seller's lender. It is up to the lender whether the deal will go through. You will need to put up earnest money also. Commissions will be paid by the lender to the agents, but they may be reduced. Check your agreement with your agent to see if you will have to pay the difference. Always get an inspection before closing and get the property surveyed and checked for termites. These items you will have to pay out of pocket, whereas in a normal home sale, the seller would have paid for them.
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- Appraisal Basics
- Short Selling a Rental Property
- FHA Loans for a First-Time Home Buyer
- How to Get Approved for an FHA Loan despite Bad Credit
- Should You Refinance? Make Sure the Timing is Right
- What Lenders Don't Reveal About Home Equity Loans
- FHA Eligibility with Bankruptcy and Foreclosure