Is a Short Sale Right for You?

Short sale real estate transactions have become all too common recently. As a result of the recent housing downturn, many homeowners now owe more on their mortgage than their home is worth. This becomes a major issue if the homeowner encounters financial troubles such as increased mortgage payments due to interest rate changes or increased escrow payments or a loss of income. The inability to sell their home for enough to pay off the mortgage puts these homeowners in a “no-win” situation. This is where a “short sale” might come into play. A short sale occurs when the owner's mortgage lender agrees to accept less than the current mortgage balance as payoff for the loan in order to get the home sold. Many times, lenders see this as a less costly alternative to the often long and pricey foreclosure process. In order to qualify, borrowers must submit bank statements and other documentation to their lender in order to demonstrate their inability to make payments. After this, the bank will perform an appraisal to verify that the home cannot be sold for the mortgage balance. I should be noted that borrowers may also be asked to repay a separate loan for any losses incurred by the bank. Home buyers might view these situations as opportunities to get a great deal on a house. While this may indeed be the case, there are also some drawbacks of which to be aware. First, short sales often take a long time to complete because banks must complete their review of the current borrower’s financial situation and determine the home’s value before short sale offers can be considered. Secondly, loss mitigation officers may be overwhelmed with hundreds of working files, so a response on an offer may take weeks,or even months, with no assurance an offer will be accepted. Third, banks are characteristically unwilling to make repairs to short sale properties, possible conditions of loan approval for new borrowers, thereby dooming any transaction. Homeowners should first discuss the option of modifying their mortgage with a mortgage lender before resorting to a short sale. The government has established new guidelines for modifications that might include a deferral of payments, interest rate reductions, or an extension of the mortgage term. Home Loan Specialists will be able to assist with this effort. A homeowner should seek out a real estate agent with experience in short sales if it seems a short sale is the better option. Home buyers should be cautious of purchasing a short sale, unless they accept the extended time frame needed to complete one of these transactions. In addition short sales, buyers may want to get pre-approved for a mortgage (like the FHA 203k program) that allows the buyer to roll repair costs into their mortgage if the desired home does need some fixing-up.