What does short sale your home mean? Is a common question that I still get from homeowners I come across when I speak to them about listing their home for sale with me.
Let’s see, the short sale definition that I commonly give is that a short sale is when a home seller gets their mortgage company to agree to let the home seller sell their home for a sales price that is for less than what is owed on the mortgage. Said in another way, a short sale is where you sell your home for less than what you owe on it and the mortgage company takes a loss on the money they originally loaned you.
Let me explain, a Short Sale may be appropriate for a Mesa home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale (this is because the home seller doesn’t have the money to pay the lender the extra money), the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
What Are The Effects Of Short Sale?
In most cases, short sales are a preferable alternative to foreclosure but the process still impacts both the homeowner and the mortgage lender.
- The homeowner is penalized with a derogatory major tradeline on their credit for not fulfilling a mortgage obligation which leads to a drop in credit score.
- The lender is forced to take a loss on a mortgage loan.
Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.
About The Short Sale Process
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing.
Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.
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