For many homeowners who are struggling to stay current on their mortgage, a short sale can provide a way to get out of debt. There are guidelines and restrictions, as well as advantages and disadvantages, so it’s important to understand how a short sale works.
Short Sale Guidelines
When a homeowner short sells a home, it sells for significantly less than market value. However, the lender must approve the short sale before it take place. Once the property is sold, the lender will pay off the existing loan with the proceeds from the sale and usually forgive the remaining debt. Homeowners who can’t afford their mortgage payments get out from under their debt, and lenders get to recoup some of the money owed on the loan. If a lender forecloses on a home, they are likely to recoup less money. Lenders really don’t want foreclosed properties, because the cost of maintaining foreclosed homes for sale in Phoenix AZ can be very costly.
A short sale can be a good option for homeowners who face financial hardships due to job loss, health problems, and difficult personal situations. If a homeowner becomes delinquent on mortgage payments, he/she can often negotiate with the lender on a short sale agreement, rather than fall into bankruptcy or foreclosure.
Short Sale Qualifications
For a lender to accept a short sale agreement, the homeowner must provide documented evidence of a hardship that caused the mortgage delinquency. Hardship is extremely important to an approval, so it should be carefully thought out and documented with accurate information. Typical hardships include:
* Job Loss – The most common hardship that impacts a homeowner’s finances is a job loss. An unexpected layoff or termination can create a heavy financial burden that can make it impossible to keep mortgage payments current.
* Relocation – Many homeowners face financial hardships when they have to relocate for a job or personal reason. They may not be able to sell their current home before they have to move. If the home sits on the market for a while, the homeowner may not be able to keep the payments current.
* Extreme Drop in Home Values – If home values drop significantly in an area, a homeowner may end up with a mortgage that’s “under water,” meaning that the home is worth less than what’s owed on the mortgage. This situation creates a financial hardship that’s difficult to get out of, especially if home prices continue to drop.