What Is a Short Sale?
March 14th, 2012
March 14th, 2012
At the end of 2011, about 11.1 million homes were underwater – meaning the homeowners owe more on their mortgages than their homes are worth. When a home is underwater, it prevents the homeowner from selling their home unless they’re willing to take a loss. However, there is another option. The homeowner can talk to their lender to see if they would be willing to allow them to sell their property for less than the amount owed on the loan. This is called a short sale.
However, the bank or lender must agree to the short sale. And not all lenders will approve it. In each case, the lender will determine if it’s in their best interest to take a loss on the rest of the loan.
If the homeowner has a hardship, such as lost income due to a lay-off or an illness with rising medical costs, and he/she is facing possible bankruptcy or foreclosure, then the bank may agree to a short sale. In this instance, the bank will make more money through a short sale than having the property go into foreclosure.
For example, a homeowner in hardship has a first mortgage of $350,000. The bank agrees to accept a short sale. A potential buyer offers the lender $270,000 for the home. If the bank accepts the $270,000 as full payment for the mortgage, then this is considered a short sale.
Some reasons why lenders may be willing to accept a short sale are:
So what are the pros and cons to a short sale?
Short sales can help homeowners facing foreclosure, although it can still damage their credit. For homebuyers, a short sale means they may get a great home at a lower price. However, buyers need to be willing to go through the extra paperwork and time needed for a short sale. This may not be an option if the buyer needs to move into a new home quickly.
If you’re buying a home and need a mortgage, an experienced mortgage broker can guide you through the lending process. At Grandview Lending, we can help you find the right loan that fits your needs.
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