Some Facts About Short Sales
When a foreclosure and/or bankruptcy is staring you in the face, a short sale of your home can be a better alternative. They are rising in popularity, mainly due to the fact that they don’t ruin a borrower’s credit rating. Also, banks are more willing to accept short sales, and some banks are even offering cash incentives to homeowners. Here are a few facts for those of you unfamiliar with short sales:
- What exactly is a short sale? It’s the sale of a property in which the lender agrees to take a loss on the mortgage loan. The property in question is “under water” – selling for less than the mortgage balance. The homeowner usually gets nothing from the deal unless the bank offers a cash incentive. However, the homeowner preserves her credit rating and avoids bankruptcy. Banks lose less money on short sales than they do on foreclosures, so they are motivated to accept short sales.
- How do foreclosures compare to short sales? As mentioned, a foreclosure destroys your credit rating and it can take several years to repair it. Employers sometimes deny jobs to applicants who have experienced a foreclosure. You have to wait at least five years to apply for another mortgage. It might even complicate your ability to rent an apartment. A short sale is far less damaging to your credit report. In most states, a bank cannot come after you for additional money if they agree to a short sale of your property.
- How does a bankruptcy compare to a short sale? A bankruptcy is marginally less destructive to your credit rating than is a foreclosure. It consolidates and wipes away your liabilities. However, it will not stave off a foreclosure once one is started. A short sale is preferable if your home is the reason for seeking bankruptcy. You avoid the hit to your credit report, which will show the sale as “settled debt”.
- How do you qualify for a short sale? If you have a legitimate hardship, you should qualify. These are events like job loss, death in the family, illness or accidents, divorce, relocations, etc. While a short sale is not a bailout to the borrower, it certainly helps them walk away from a tough situation.
- What are the main benefits of a short sale? It ends your financial and emotional nightmare without overly-damaging your credit rating. It thus allows you to get on with your life, and frees up your property for another owner who can afford it. This helps put a floor on the decline of housing prices and aids recovery. For instance, San Diego short sale experts agree that short sales have been an important factor in the stabilization of their local real estate market.