A short sale is when a homeowner and a lender or mortgage company negotiates a lesser amount of the loan due for the house. This is done before a foreclosure occurs, and involves selling a property for less than what it is owed on it. The homeowner has control of the sale of their property rather than the lender. Short sales are a good alternative for people who owe a larger amount to the bank or mortgage company than the home is worth. Due to recent changes in government administration and a tough economy, it is easier now to get a short sale than ever before.
Short sales must be done before a foreclosure happens. In order for a homeowner to perform a short sale on their property, they must prove that they cannot pay their mortgage. Perhaps they are going through some sort of financial hardship such as the loss of a job and income. Lenders want the homeowner to prove that they cannot make their monthly payments. They also need to know the homeowner has no assets that they might be able to sell in order to keep their home.
Pros and Cons of buying a Short Sale Home
One of the best aspects about shorts sales is that the condition of the house is insignificant. All houses with mortgages can be sold for less, even if they need a lot of work. In fact, the houses with the most repairs needed are the ones that lenders like to buy for the cheapest price. While it may seem like some of the homes in bad condition would be a bad investment, one may view the opportunity as a great deal. There is hope for even the most dilapidated properties and houses.
A downside of performing a short sale on a home is the fact that it creates a bad mark on one’s credit score. However, a seller may be able to purchase another home shortly after a short sale. It may be difficult to find a lender after short sales, but one could own another own shortly afterwards. This is not possible with a foreclosure, which stays on a credit report for at least seven years and makes it very hard to own another home in that time frame.
Another difference between a foreclosure and short sales is the length of time given to leave the property. When a foreclosure occurs, the lender or bank usually requires the seller to leave the home almost immediately. With short sales, the seller has significantly more time to vacate, perhaps months, and there is usually no eviction involved.