A short sale is a process in which the debt owed on your home is negotiated down. It can often be used when you have trouble meeting monthly mortgage payments. The seller agrees to sell for less than what is owed, and lenders decide to reduce the loan amount and shorten the total time needed to pay back your loan. Most sellers take a loss from selling at such a price, but it is usually much less than they would pay in foreclosure proceedings.
Pay Off Your Mortgage
It is essential to be current on your mortgage before attempting a short sale. The best way to do this is to ensure that you are getting the maximum cashback from refinancing and paying as much as possible toward the mortgage each payment period. Otherwise, your lender may not work with you on a short sale.
Confirm Your Income and Assets
You must first make sure that you have enough income to survive after selling the house. Residual income is a big part of short sales, so make sure you have enough money from other sources to replace what you lose in monthly mortgage payments. Your lender may save you money by not requiring a large down payment for the short sale, or your lender may be willing to allow you to refinance with a much lower interest rate. Check with your lender before proceeding further.
Make Sure Your Credit is in Good Shape
You should get copies of your credit reports. Be sure to keep a copy of the credit report from the lender who will eventually buy your home from you if there are mistakes that might disqualify you for a short sale. If there are no mistakes, then you should be good to go.
Consider a Pre-foreclosure Sale
A short sale is usually considered when the homeowner owes a lot more than it is worth. If this is the case for you, you might better sell it before going into foreclosure. You could sell it yourself or through a third party who will help you through the foreclosure process or try another loan guarantee. A loan guarantee states that someone else will pay back the bank if your income and assets are insufficient.
Understand What the Lender Will Expect
You need to know what you are getting into before agreeing to a short sale. Be sure that the lender has sufficient cash and that there are no reasons why your short sale will not go as planned. The bank will expect you to work with them to agree on a loan. If there are no options, they will ask for more money than they otherwise.
A short sale can sometimes be an excellent way to get out of a bad financial situation. It may not be the best solution for everyone, but it might work. Just make sure that you get the help and information you need from the lender before proceeding further.