Homeowners may find themselves unable to make their mortgage payments and face the possibility of foreclosure. However, if you find yourself in this circumstance, you may have alternative options, such as completing a short sale. Wondering what exactly is a short sale and how to qualify? Continue reading to discover the answer.
What Is a Short Sale
Short sales are real estate transactions where your bank agrees to accept less than the amount you still owe on your mortgage. Foreclosures are costly and time-consuming for lenders, so settling for a short sale instead could save them both time and money.
In most cases, you need to contact your bank before you miss your first mortgage payment. Short sales are often preferred to foreclosures since they have a far lower impact on your credit and ability to buy a new house in the future.
How Does the Process Work
You will send your lender a letter detailing why you need a short sale and wait for them to respond. Once accepted, you will put your home on the market until you find a buyer, then all proceeds go to your lender. The sale price will often be significantly lower than the actual market price to incentivize a speedy transaction and motivate buyers.
How To Qualify
You’ll run into several common obstacles you’ll need to overcome before getting approval. The primary hurdle is two essential conditions you must meet before your lender authorizes a short sale. First, your house must be worth less than the loan you took out to buy it. The second is that you must be experiencing financial hardships that prevent you from making your mortgage payments.
Hardships that qualify include divorce, loss of employment, deaths in the family, and significant medical expenses. However, once you’ve got everything settled and have the proper documentation, you’ll likely be granted your request.
Knowing what exactly a short sale is and how to qualify for one offers you a valuable option to have in case you run into financial difficulties. Even the most fiscally responsible people can face unforeseen challenges that limit their capacity to pay for their property. Fortunately, you have options you can fall back on as long as you’re proactive.