What Is A Real Estate Short Sale And How Can You Qualify For It?
Are you facing a financial hardship and about to experience a foreclosure on your home? In such a situation, you can use a short sale in order to prevent foreclosure on your house. A short sale is advantageous over a foreclosure as the former has less damaging effect on your credit score. Read on to find what a real estate short sale means and how you can qualify for it.
Real estate short sale – What it means
A short sale involves the sale of a home wherein the lender accepts an amount less than the outstanding mortgage balance. It is also referred to as pre-foreclosure sale. A short sale usually happens when there is not enough equity in the home, which can be sold in order to repay the mortgage. It may also happen that the property is in such a locality, where the home price is going down. So, the home is sold for less than the full payoff amount of the mortgage loan.
How to qualify for a short sale
There are certain factors that determine whether or not you may qualify for a real estate short sale. You need to say ‘yes’ to each of the following 4 factors in order to qualify for a short sale.
1. You’ve defaulted or about to default: Lenders may consider granting a short sale request if you’ve already defaulted on your monthly mortgage payments or you’re experiencing a financial hardship that may compel you to default on your home loan payments.
2. You’re experiencing a financial hardship: In order to go for a short sale, you’ll have to submit a letter of hardship explaining why you can’t pay back the difference that’s due upon sale and why you’ve stopped or you’ll stop making your monthly mortgage payments.
3. Your home value has gone down: The market value has dropped and your home is worth less than what you owe on your mortgage loan. The prepayment penalty can be included while calculating the unpaid mortgage balance.
4. You don’t have any valuable asset: The lender may not grant a short sale if he/she finds that you have valuable assets, as you can use them to repay your outstanding balance.
It is true that a real estate short sale can help you to prevent a foreclosure on your home. However, a short sale has a devastating effect on your credit report though it is less damaging than a foreclosure. If you go for a short sale, then your credit score may drop by 80 -100 points. Moreover, a short sale stays on a credit report for 7 years and it’ll be difficult for you to qualify for a mortgage in the next 2-3 years; even if you qualify, you may have to pay high interest rates on your mortgage.