What All Homeowners Should Know About Short Sales
When a homeowner is unable to pay their mortgage, it can be a stressful time. The number one threat homeowners think of when they can’t pay their mortgage is foreclosure, a process when the mortgage provider repossesses the home resulting in the homeowner’s credit score being lowered. Before this happens, homeowners may have another option: a short sale. While short sales may not be accessible to everyone, they can be a good option when they’re available. Here is what all Leander homeowners should know about short sales in order to get the most out of them.
What Is a Short Sale?
A short sale is when a homeowner sells their home to a buyer for less than the amount they currently owe on the mortgage. Short sales allow the homeowner to avoid having their home repossessed by the lender. Short sales are also used by homeowners to try to avoid bankruptcy. Lenders typically always prefer short sales to repossessing a home because foreclosure is an expensive and time-consuming process, and a short sale is the easier option of the two.
The Difference Between a Short Sale and Foreclosure
To someone who doesn’t know otherwise, a short sale may seem very similar to a foreclosure, especially because they’re both targeted at homeowners who are underwater in their mortgage payments. However, these two things are very different, and they have different goals. Some of the differences between the two include:
- Foreclosure seizes the home and evicts the owner, and a short sale does not
- Foreclosures can only be initiated by lenders, and short sales can be initiated by either party
- Selling a foreclosed home typically takes less time than a short sale
- Homeowners who have gone through a short sale may be eligible to purchase a new home immediately, while homeowners need to wait a minimum of seven years after a foreclosure
- Foreclosures stay on a homeowner’s credit report for seven years
- Foreclosures can be accompanied by bankruptcy, while short sales are completed to avoid bankruptcy
When a homeowner is moving toward the point where a short sale or foreclosure is necessary, it’s important to understand the differences between the two. While they can both potentially happen when a home is underwater, one is a lot better for homeowners than the other.
When to Use a Short Sale
Short sales can be a good way of selling a home when a home is underwater. This means that the home is worth less than what the homeowner currently owes on their mortgage due to the price dropping. Typically, a homeowner will only initiate a short sale when the home’s value has dropped by 20% or more. However, a homeowner can’t just decide to do a short sale. Should they decide that a short sale is the best course of action for their needs, they need to write a letter to their lender explaining why they want a short sale, why it would be advantageous, and they also need to include any documentation that supports their argument.
A short sale may not be the ideal situation to be in, but when a home is underwater, it can be the best choice for the long run. Short sales can give homeowners the means they need to get out of a home that isn’t worth what they paid without the drastic consequences of a foreclosure.