Do You Qualify for a Short Sale?
A short sale is an attractive alternative to foreclosure, mainly because the impact on your credit is less severe. However, just because you owe more on your mortgage than your home is worth doesn’t necessarily mean that a short sale is a viable option.
In a short sale, the lender agrees to accept a pay-off on your mortgage for less than the amount owed. In most cases, the lender is not going to agree to receive less money if there is evidence that you can continue to pay your mortgage as promised. Thus, a homeowner hoping to sell their home in a short sale must usually demonstrate that they can no longer afford the mortgage payments.
The first question the lender will ask is “What happened?” At the time of loan origination you were able to make your payments….why not now? You will be asked to identify one or more recent hardship factors that have negatively impacted your ability to pay. Examples of hardship factors include:
- Death of a Spouse
- Reduced Income
- Medical Bills
- Too much Debt
- Military Service
- Business Failure
The lender will also request that you complete a financial worksheet that lists all of your monthly expenses and income. You will need to provide bank statements, pay stubs and tax returns to document the information on the financial worksheet. Contrary to popular belief, it is okay to have a small amount of money in savings and lenders do not expect you to drain your 401K to pay your bills.
So the bottom line is that if you have experienced an event(s) that triggered a financial hardship and your monthly expenses are greater than your monthly income, and you owe more than your home is worth, you probably qualify for a short sale. And even if you don’t qualify according to the guidelines above, you may have other circumstances that would make a short sale an option, such as an adjustable rate loan that will adjust in the future, making the payments too high to handle.
But before you call your local Realtor and list your home as a short sale, make sure that your agent has pre-qualified you according to the guidelines of your particular lender. While not every short sale is accepted by lenders, your chances for a successful sale are improved by a thorough pre-qualification.
For a confidential consultation, please don’t hesitate to give me a call.