When is it okay to do a short sale?
One of the realities of borrowing money to purchase a home that people often forget is that it is a financial risk. Even the most cautious and responsible of home buyers can potentially find themselves in a difficult situation due to a layoff or expenses related to a serious medical problem. For buyers who are having difficulty keeping up with their mortgage payments, however, losing the home to foreclosure is not the only option. In many cases, it is possible to arrange a short sale.
What is a Short Sale?
This is a type of sale that occurs when a home owner chooses to sell for less than is still owed on the mortgage, and the bank that holds the loan agrees to accept that selling price as a complete repayment of the debt. Because the bank must agree to accept a lesser amount, such a sale can not be carried out without their permission and approval. This complicates the process, since all offers have to be run past the lender in addition to being agreed on by the seller and buyer. For those who are willing to be persistent, however, it can often be the best choice available.
Why is a Short Sale a better choice than foreclosure?
Having a home go through foreclosure is a complete disaster from the perspective of the home owner’s credit. Because potential lenders are always concerned about whether they will be repaid their money, failing to pay something as significant as a mortgage can make it very difficult to borrow money for any reason for years afterward. Also, the guidelines set by Fannie Mae mean that many of those who go through foreclosure will not be eligible to get a home loan again for seven years. In contrast, someone who does a short sale may be able to qualify again in just two to three years.
Why would a bank accept this arrangement?
When banks go along with this, it is because it is the best financial deal for them. One of the rules that is written into a mortgage is that the bank gets to keep the home if the buyer fails to pay as agreed. Many people assume that this situation is a huge windfall for them, since they got some of the payments and also end up getting to take over ownership of the home. In fact, though, this process is very expensive for a lender. They are often much better off if they agree to the sale than they would be attempting to take over ownership themselves.
There is no perfect way to get out of a mortgage without paying it off. For people who are unable to pay, or even unwilling to pay due to having a mortgage that is now much larger than the current value of the home, this type of sale can minimize the damage. It also helps sellers by drastically shortening the amount of time that they must wait before starting over with a new home.
About Hippie Hollow Homes: Hippie Hollow Homes is a real estate company based in Central Texas and services the Waco, Killeen, Austin, San Marcos, and San Antonio markets. Since 2003, we have successfully participated in over 1,200 real estate transactions, including short sales. We have seen and experienced just about everything in real estate. However, we cannot assist you if you don’t call us. Fill out the form on the side of the page to take the first steps to selling your house.
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