If you looked into your options and a short sale seems like the best way forward for your situation, how do you actually go about doing it? Different lenders may have different standards. The important thing to note is that the lender manages the sale. They have to agree to any sale, so the process can take some time. Truth: In certain circumstances, you can get an FHA loan within three years of the short sale date.
Guidelines are different for each mortgage investor. The difference between the amount of the short sale and your actual mortgage balance is considered forgiven debt.
However, there are exceptions. Truth: Your credit score will suffer as a result of a short sale, but the impact is different for everyone. A short sale happens when the lender is shorted on a mortgage, meaning the lender accepts less than the total amount that is due. It might be possible to sell your home short if your mortgage balance matches the sales price because there are still closing costs that will bring the home into the short sale category.
Before you decide to pursue a short sale, consider the following to determine whether you may qualify for one. If you don't meet all four requirements, you may not qualify to sell your home in this manner. Some examples of hardships are unemployment, bankruptcy, divorce with the loss of income, or a medical emergency with the loss of income. Assets could be IRAs, savings accounts, or other real estate. Sometimes, to avoid going through the cost of foreclosure , a lender will sanction a short sale by letting a buyer purchase the home for less than the mortgage balance while the home is in the pre-foreclosure stage, one of the three stages of foreclosures.
Some sample steps of a short sale are:. A short sale is dependent on a buyer making an offer to purchase.
If you do not receive an offer, you won't qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place. If the lender agrees to the short sale, they may possess the right to issue a C to the buyer for the difference where the difference is viewed as income for the seller , due to a provision in the IRS code dealing with debt forgiveness.
Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes.
While a short sale will not show up on your credit report, the loan status will. For those in default, it's a pre-foreclosure that has been redeemed, which is often reported as "Paid in Full for Less Than Agreed. Short sales affect credit ratings. Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site.
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Still, these distressed sales could become part of the homebuying landscape again. A short sale can yield a good deal on a property, but it generally takes a certain amount of fortitude and patience, plus a lot of luck. A short sale is when a lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner.
The lender forgives the remaining balance of the loan. Buying a home through a short sale is different from buying a property at a foreclosure auction , or one that is actually owned by the bank, known as an REO or real estate owned property.
In this scenario, the homeowner has negative equity and may need to get rid of the home. A short sale is not the same as a foreclosure. In a foreclosure, the bank repossesses the property and then tries to sell it for enough to recover its costs. However, a short sale can forestall foreclosure and its negative impact on your credit.
The buyer gets the property at a reduced price, but the property in all likelihood has its share of problems — think fixer-upper — and the deal needs to go through considerable red tape to make it happen. A lender may even require a buyer pay additional closing costs that might be normally assigned to the seller. The lender takes a financial loss, but perhaps not as large a loss as it might if it foreclosed on the property.
In a short sale, the proceeds from the transaction are less than the amount the seller needs to pay the mortgage debt and the costs of selling. For this deal to close, everyone who is owed money must agree to take less, or possibly no money at all.
That makes short sales complex transactions that move slowly and often fall through. For the most part, everyone gets some sort of benefit in a short sale, although everyone gives up a little, too. In the end, a short sale is about staving off worse outcomes. A short sale might be able to help you preserve your credit to some degree by helping you avoid a foreclosure on your record. A short sale can take as little as a few weeks or as long as several months.
Because short sales are complicated transactions, they tend to be more time-consuming. Plus, the original lender needs to review the short sale offer to determine whether they will accept it. If the lender believes they can make more money by going through the foreclosure process, they might not accept the short sale proposal. You can reduce the time it takes by working with a real estate agent that has experience with short sale transactions.
A short sale is one real estate deal where you really need to get help from an experienced agent or attorney. Not all real estate agents know how to handle a short sale, so make sure you consult with one who can demonstrate special training and a good track record.
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