Can I Short Sale My Home – What are the Considerations?
The short answer as to whether or not you can short sale your home is – maybe. The answer really depends on whether or not your loan holder or holders agree to it. A short sale is when you sell your home for a price below what you owe on it. Short sales have become much more common in today’s housing market as a result of the significant drop in home values.
Short Sale Considerations – Getting Approved
The most important consideration when considering a short sale is whether or not it will be approved by your mortgage holder. The mortgage holder will have to agree to release the lien on your home for less money than you owe on your loan. This becomes much more difficult if you have additional home loans from other lenders. These lenders may not be getting anything out of the sale.
You should speak to your mortgage holder or holders and find out if they will approve a short sale and for what price. You may need help in negotiating the terms of a short sale.
Short Sale Considerations – Timing
Short sales often take several months to many months to complete. If you were hoping for a fast sale you may be disappointed. Buyers are also often reluctant to make an offer on a short sale because they know there is no guarantee the bank will ever approve the amount and the property could be tied up for many months.
If you can get the lender or lenders to pre-approve the short sale you can make the closing go much faster and give buyers more confidence in making an offer.
Short Sale Considerations – Your Credit
A short sale will certainly damage your credit score depending on how the mortgage holder or holders report it to the credit bureaus. The way it is reported will vary which means it may be difficult to predict just how much damage the short sale had on your credit. Though this may not be something you are thinking about today, it is something to consider for the long term.
Short Sale Considerations - Seller Cost
Do you need a short sale? The bank is going to try and determine if you need a short sale, or if you are just trying to get off easy.
Fact: The bank is going to lose money on a short sale. In some cases, a lot of money. But, they will accept a short sale if they believe the only alternative is foreclosure. Foreclosures are very expensive and time consuming for a bank. After a foreclosure is over, the bank ends up with the house on their books. The bank must then try and sell the home, often for less than the short sale offer. The bank also knows the short sale offer is often times the current value of the home. So the bank accepts the loss, but only if they believe this is all they can get. Meaning, if the bank believes you (as the seller) have some financial means to cover this loss... they will require you to do it.
So, you must provide a full financial disclosure to the bank. If they see you are:
- Unable to continue making payments
- Bankruptcy is very likely
- You have no other (or very little) assets
they are more likely to approve the sale.
If however, they see you are able to cover much of their loss, they will require a check (from the seller) at closing. The amount of which is determined by (what they believe to be) your financial means.
If you are comfortable with these considerations and your lender or lenders approve of the short sale there is no reason why you cannot do a short sale on your home.
This article is intended for general information. Always seek sound financial and legal advice before making any financial decision.