What Is A Short Sale And How Does It Work?
A short sale is when a mortgage lender approves the sale of a homeowner’s home for a value less than the amount the homeowner owes on their mortgage loan balance. After the 2008 Real Estate and Mortgage Meltdown, real estate values have collapsed where many homeowners who had equity in their homes were left with home mortgages that were higher than the amount they owed on their mortgage loans. Since the economic and the real estate meltdown, many homeowners have seen their home values go back up and many, especially in California, Florida, Illinois, Texas, and other parts of the country. However, there are still homeowners who still have mortgage loan balances that is higher than the balance of their homes. In order to sell their homes, they need to come up with the difference on what they owe from the sales price of their home. With a short sale, the homeowner has the mortgage lender’s blessing to sell their home at the current market value and will often forgive the debt that they owe.
Short Sale Process
If a homeowner is going through financial hardship and they owe more on their mortgage loan balance than the value of their homes, their mortgage lender may accept a short sale. Getting approved for a short sale is a process. Mortgage lenders will want to see financials of the homeowner and the reason why their mortgage payments is a hardship. After carefully reviewing the mortgage loan borrower’s financials and credit, the mortgage lender can approve a short sale. The homeowner can choose a realtor of their choice. The mortgage lender will do their own due diligence on pricing the home and will research recently sold properties in the area. Once a listing price is decided, the homeowner can have their real estate agent list the property. Once a potential home buyer submits a real estate purchase offer, the homeowner has no say so whether or not to accept the real estate purchase offer. The real estate purchase offer needs to be submitted to the mortgage lender who holds the note. Most mortgage lenders take their sweet time in reviewing the real estate purchase offer and sometimes it may take weeks or months before getting back to the home buyer with a counter offer. Short sales are a long process and take much longer to close than traditional home sales because banks and mortgage lenders normally take long.
Can A Homeowners Who Short Sales Qualify For Another Home Loan?
A short sale will definitely affect the credit and credit scores of the homeowner. However, homeowners with a prior short sale can definitely qualify for another home loan after short sale. If the homeowner has been timely with their mortgage payments and all other monthly debt payments up to the date of their short sale for the past 12 months, there is no waiting period to qualify for mortgage after short sale. Unfortunately, most mortgage lenders want the homeowner to skip at least one months mortgage payments for the short sale to be effective and this 30 day late payment on their mortgage payments will trigger a three year waiting period after short sale for FHA Loans and a four year waiting period after short sale for Conventional Loans.
Credit After Short Sale
A short sale will most likely trigger a 100 plus point drop in the homeowner’s credit scores. However, the credit scores will eventually go back up as the short sale ages. Homeowners who had short sale should start re-establishing their credit by adding positive credit and being timely with all of their monthly debt payments. Secured credit cards are the best tools in re-establishing credit after short sale and each secured credit card can boost a consumer’s credit scores by 30 or more points and expedite the credit re-establishing process. Never be late on any monthly debt payments after short sale. Most mortgage lenders will disqualify mortgage loan borrowers who had late payments after short sale, bankruptcy, and foreclosure. One 30 day late payment after short sale can disqualify a mortgage loan borrower from qualifying for a mortgage loan for at least seven years. A short sale will be on a consumer’s credit report for 7 years.