Lenders will look at a number of factors to determine if they will approve a short sale of your home. Just because you are behind in your payments or you learn your home is not worth what you paid for it 5 years ago it is not likely they will agree to allow you to sell the home and walk away with the mortgage not fully satisfied. There are a number of factors that will be considered. You will have to show some hardship that has unexpectedly put you in this situation. Things like you lose your job, have major health expenses, your job forces you to move to another city far away, you lose one of the wage earners on the mortgage, etc. Essentially you must prepare a hardship letter that explains why you are no longer able to stay in this home or pay the mortgage payment on it. If it is simply a financial hardship (job loss, health expenses, etc) the lender may discuss alternatives such as a one time forgiveness of a payment on which you are behind, forgiveness of some late charges, etc. or even an interest reduction. Cooperate fully with the lender if appropriate and you feel it may help. If you do not HAVE to sell the house (like a job move) right now and can work something out with lender DO IT. Look also into local government sponsored or affiliated organizations that offer credit counselling and home ownership advice. If you must sell, seek out a real estate agent that is experienced in handling short sales – not your cousin who sells houses part time. This is a specialty situation that requires a knowledgable agent to assist you.
In order to qualify for a short sale, you must first speak with your mortgage company. Some will ask you to consider applying for a loan modification, take consumer credit counseling or they will ask you to submit a request for a short sale package application.
You will need to list your home with a Realtor. You will need to provide a hardship letter as to why you cannot stay in the home. You will need to provide complete financial data including bank and tax paperwork as well as your total liabilities and assets list.
Once an offer is secured on your home, you will submit the offer along with a completed short sale package to the lender – all of which is typically handled by your Realtor – to begin the negotiation process. You will negotiate the sale with the buyer, but your mortgage company will determine the final sales terms.
The lender may agree to allow you to short sell your home if you prove to them that the market value of your home is less than you owe, and that you are not able to keep current the mortgage that you agreed to pay. You will need to demonstrate both of these things to the lender – basically, by allowing you to short sell, the lender is allowing you to not pay them back the full amount owed. No lender wants you to short sell – but some admit that they will lose less money and have less aggravation by allowing you to sell your home for as much as the market allows (as opposed to foreclosing and evicting you and then having to sell as a bank-owned property).
In most cases, this will have an adverse effect on your credit rating. Your credit will be less affected if you continue to pay the mortgage all the way through … but the lender may be less inclined to answer you if they are getting the money each month. This is a decision you will have to weigh carefully.
You can begin by approaching your lender for options – if you decide to short -sell, enlist the assistance of a QUALIFIED, EXPERIENCED real estate agent in the area that handles shortsales. The commission of this realtor will eventually be paid by the bank, as you do not profit from the sale – so it is well worth having someone on your side to assist you with the process. Short sales can be tedious and involve a lot of paperwork and tenacity – you probably dont want to learn the process on your own home by trial and error. In some states, real estate attorneys are heavily involved in the short sale process as well. Take referrals locally, and carefully interview each about the process – what you can expect, how long it will take, and what other options you may have if the bank says no.
A short sale is simply a sale for below what the existing mortgage amount is, that has to be approved by the existing lien holders. As far as qualifying for one, if you mean qualifying to buy one, it is no different than qualifying to buy any other real estate. You have to work with a mortgage lender who looks at your credit, your income and your assets and can determine how much loan you can afford. Some lien holders do require that you get a pre-approval from them before making an offer on a short sale or foreclosure.
One of the things good to ask is, if the listed sales price has been pre-approved by the existing lien holder. Often times, it has not been and then you could be wasting your time making an offer on the property, even if you are offering the price the listing agent is asking. You will sometimes see “pending third party approval” on a listing where the listing price has not been approved by the existing lien holder.