The risks of a short sale for sellers are that you may not find a buyer or you may not receive an approval from your bank or mortgage lender. If the seller cannot find a buyer, they risk having their home fall into foreclosure. The seller also has to qualify in order to sell their home as a short sale through their bank or lender. The risk of a short sale from the buyer's perspective is that the process to purchase takes a long time because the homeowner's mortgage lender has to approve the sale.
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This process can take up to four months, which may impact the buyer's own home sale or living situation. In some cases, potential buyers end up walking away from a short sale because of the amount of time involved. Since the mortgage crisis, there's been a growing market of home buyers who pursue a short sale or foreclosed homes as investments. Buyers should make sure that homes listed as short sales have owners who are qualified by their bank or lender.
Buyers should also make sure to compare the short-sale price to the current market value of comparable homes listed or sold recently. Both sellers and buyers should also consider using real estate agents who have experience with short sales. Sometimes real estate market trends can drive down a home's value over time and have an experienced agent can help manage expectations for an appropriate selling and purchasing price.
A short sale is considered negative information and it will stay on your credit report for seven years from the original delinquency date of the mortgage. If your payments were never late, the mortgage will remain on your credit report seven years from the date it was reported settled or paid. While the term "short sale" does not appear, your credit report does describe a "negotiated settlement" of your mortgage debt for less than originally owed.
Anytime an account is reported that way, it will hurt your credit history and credit scores. A short sale, or settled debt as reported on your credit report, will have a greater impact than other types of settled debts with a possible credit score drop between and points depending on the credit score used.
Short Sale vs. Foreclosure
Payment history is the most important factor in credit scores and by getting behind on your mortgage payments it will have an immediate and severe impact on your credit scores. If you were entering a mortgage modification program and never missed a payment, then your scores would not be negatively impacted at all. Before agreeing to a short sale of your home, make sure you understand how the account will be reported by your lender so you know what the financial impact may be. The National Foundation for Credit Counseling is a good resource if you want to seek the guidance of a financial advisor who can help you navigate your options.
Unfortunately, too many homeowners are pressed into a short sale by financial burdens that are preventing them paying their monthly mortgage payment.
If needed, a short sale can be a viable solution to avoid a foreclosure for the seller and the bank. Whether you are shopping for a car or have a last-minute expense, we can match you to loan offers that meet your needs and budget.
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Short Sale (Real Estate)
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Other product and company names mentioned herein are the property of their respective owners. Discover loan offers with rates and terms that fit your needs. A short sale occurs when you sell your home for less than what you still owe on your mortgage. It can prevent you from seeing your home foreclosed and undergoing bankruptcy.
Does a Short Sale Affect Your Credit Score?
However, your mortgage lender must approve the short sale. The process can also be complex and risky. How to Qualify for a Short Sale.
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Before you can initiate a short sale, you must meet the following conditions:. If you find yourself in these situations, you can contact your mortgage lender to discuss a potential short sale. If the lender agrees to move forward, you can work with a real estate agent to put your home back on the market. But keep in mind that your lender must approve of all short sale details.
This means the bank can deny your petition to short sale. It can also change its mind in the middle of the process. This may be the case even if you find a potential home buyer who agrees to your terms. Still, most lenders would prefer to work out a short sale than go through the lengthy legal process of foreclosure.
How the Short Sale Process Works. Different banks have their own rules. Normally, though, a short sale package must include the following items:. After your lender agrees to move forward, you should find an experienced real estate agent who can help you sell your home. Together, you and your agent will decide on a home sale price and officially put the home on the market. Is 30 days enough time or should your home be on sale for six months or a year? A strong candidate will be willing to wait until the lengthy process is complete.
In addition, this person will have a mortgage pre-approval letter , proof that he or she can afford your house and an earnest money deposit high enough to suggest that he or she is seriously considering your home. A broker provides her opinion on what the home is worth, and then all parties review the entire application. Homeowners who have gone through foreclosure often have to wait seven years before they can qualify for another home loan.