Selling Your Home as a Short Sale? Here's What You Need to Know
Sometimes homeowners fall on hard times and find it difficult to make the payments on their home. When this happens, some homeowners will turn to the short sale option. Short sales are usually seen as a last resort before foreclosure. Home owners who are experiencing financial hardship and who are considering all their options should familiarize themselves with short sales. Here's what you need to know.
What Is a Short Sale?
A short sale is a sale for an amount that is less than the current mortgage owed on the home. Short sales are a more common practice of homeowners who are "underwater" on their mortgage. A homeowner is said to be underwater if they owe more on the mortgage than the current value of the home. Often, short sales are what homeowners elect to do rather than go into foreclosure.
What's the Difference Between a Short Sale and Foreclosure?
Short sales and foreclosures are both real estate transactions that occur when a homeowner is in some kind of financial distress. A foreclosure is is initiated by the bank after many unpaid mortgage payments. Foreclosures can take years to complete, depending on the state where the home is located - and because lenders must jump through many hoops in order to take a foreclosure from start to finish.
When the foreclosure is finished, the effects on the homeowner's credit can be devastating. Typically, a foreclosure may cause a person's credit to drop by 100-180 points. Many people find it difficult to purchase a home with a foreclosure on their credit history.
A short sale is usually initiated by the homeowner, instead of the bank. A short sale can take up to a year to complete after an offer is made on a home. Homeowners who want to sell their home as a short sale must seek approval from the bank in order to proceed. When the short sale is completed, there will likely be negative consequences for the homeowner's credit. However, a short sale may only drop a homeowner's credit between 100 to 150 points, so it's not quite as serious as a foreclosure. In addition, people may have the option to buy a new home sooner after completing a short sale vs. a foreclosure - depending on the type of mortgage they apply for.
How Can You Sell Your Home as a Short Sale?
A homeowner who wants to sell their home as a short sale must start by getting permission from the bank holding the mortgage. Usually this involves writing a letter or otherwise contacting the bank to describe the hardship the homeowner is experiencing. Banks are sometimes reluctant to allow short sales to proceed, as they must forgive a portion of the mortgage loan. Although often banks will cooperate because the next option is foreclosure, which often results in a greater monetary loss than a short sale.
How Can You Make Your Short Sale Home More Attractive to Buyers?
Although a typical short sale home may be (though not always) sold under market value, home buyers may be reluctant to make an offer for a variety of reasons. Short sales take a long time and are often drawn out. A typical short sale can take anywhere from three months to a year or more to finish. In addition, if the homeowner has not gotten approval from the bank to sell the home in a short sale, the sale may not go through at all.
To entice potential Palmer AK home buyers to a short sale, it's important for homeowners to keep up with the maintenance and care of the home. Many short sales may happen after a homeowner has let the state of the home deteriorate. This might happen because the homeowner may have less financial resources to keep up with home maintenance. If at all possible, homeowners should keep up with lawn maintenance and the general care and cleaning of the home. It's also important for the homeowner to keep up with repairs that need to be made - even if it is a do-it-yourself type repair.
Work With Your Real Estate Professional
If you're a homeowner who wants to sell your home in a short sale, work with a real estate professional. Short sales can be complicated, so if possible, work with a real estate agent who has experience with this type of real estate transaction. Your real estate professional can answer your questions and help you understand the short sale process.