When you bought your home, you believed you could afford the payments, and you were filled with excitement at the prospect of owning your dream house. But 5 or 10 years later, your mortgage bill is looking more like an impossible string of numbers, and you can’t remember how you ever managed to pay on time. Worse yet, you owe more than the house is currently worth, so selling won’t even help your problems. There is actually a solution to this issue that millions of American families have used to get themselves out of an unaffordable house without a foreclosure. It’s called a short sale, and here is what you need to know.
What is a Short Sale?
A short sale is a process in which you sell your house for less than you owe. If your mortgage lender agrees to a short sale, you enter into an agreement to eliminate your mortgage debt by selling your house for a lower amount and giving the proceeds of the sale to settle your debt. Even though the sale of your house won’t cover your mortgage debt, your lender accepts it as a full settlement and forgives the remaining shortfall. This method is seen as a preferable alternative to foreclosure, but it can only be done by providing true financial hardship.
Benefits of a Short Sale
Plenty of families opt for a short sale because it eliminates mortgage debt and avoids the negative impacts of foreclosure. The guidelines for recovering after a short sale are typically more lenient than after a foreclosure, and you may be able to qualify for another mortgage in two years. It’s also possible to be approved for a short sale even if you aren’t yet in default by proving that you no longer have the means to pay your loan.
Drawbacks of a Short Sale
A short sale is a solution to an unwanted problem, so it naturally has a few downsides. Since you are technically not paying back your mortgage loan as agreed, your bank will most likely report it as a “pre-foreclosure in redemption” or as a “debt not paid as agreed”. Your credit score will drop, perhaps by 100 points.
Only a short sale attorney can evaluate your situation and determine if a short sale is the best option for you to salvage your finances and avoid a foreclosure.