Short Sales

What You Need to Know

"Short sale" is a term we frequently hear, but what exactly is a short sale, who qualifies for one, and how does a short sale affect you, the homeowner?

A short sale occurs when you and your realtor negotiate with your lender to accept a sales amount for your home that is less than what you owe on it.  In this case, the lender agrees to take less than the amount owed on the loan in return for the sale of the property to a third party. 

Short sales are usually done at no cost to the homeowner.

Qualifying for a Short Sale

Without accurate information, many people are not aware of their options and that they may qualify for a short sale.

There are three requirements used to determine if you qualify for a short sale.

1.     Financial Hardship

First and foremost, your lender will want to see that you have "financial hardship."  This is a verifiable issue that has caused or will cause you to miss payments or have financial difficulties.  They can include such issues as:

·        Mortgage Payment Adjustment

·        Job Loss

·        Too Much Debt

·        Business Failure

2.     Monthly Shortfall

Almost every lender will want to see that you cannot afford to pay your mortgage.  This is done by providing your lender with a worksheet you will receive from your agent showing that your monthly expenses are more than your monthly income.

If you do not have a monthly shortfall but will have one soon due to a payment increase or pending layoff, etc, then you may still qualify for a short sale as long as the issue is verifiable. 

3.     Insolvency

In order to qualify for a short sale, you must not have the means to pay down your mortgage.  This means that the mortgage company wants to see that you owe more than you have (known as being insolvent).

Before you run off and spend every last dime in your accounts, understand that you do not, however, need to be completely broke.  This is a common misconception.  The lender will want to see that over time, you will not be able to pay your mortgage obligation.  Having money in the bank for living expenses is common and will not disqualify you.