In the U.S., one out of every 2,554 homes goes into foreclosure. Are you facing financial challenges and want to avoid foreclosure? Have you considered a short sale?
A short sale is a quick process to sell your house. It is different than a typical home sale. Let’s take a look at the short sale process for sellers.
What Is a Short Sale?
A homeowner sells his or her property for less than the mortgage balance. The homeowner usually is facing financial hardship and behind on mortgage payments. The lender will agree to a short sale to recoup some of the mortgage balance instead of foreclosure.
The homeowner initiates the sale of the house. The potential buyers deal with the home sellers, but the process is approved and reviewed by the lender.
The Short Sale Process for Sellers
Let’s break down the steps of the short sale.
Step 1: Request a Property Valuation
You need to talk to a real estate agent and the lender and see if you have enough equity to sell your home and break even. For a short sale, you need to owe more on the mortgage than the home is worth or be upside down in your mortgage.
The value of the home needs to be established before you can do anything else. It will make it easier to reach an agreement with your lender on the price.
Your lender needs proof of your home’s value, so make sure you have a real estate agent complete a comparative market analysis. You may also need a professional appraisal.
Step 2: Create a Hardship Letter
In addition to the value of the home, the lender needs to know why you have to sell. This is why the seller needs to prepare a hardship letter that outlines the reason he or she can no longer make mortgage payments.
This letter needs to be convincing so the lender can understand why the seller is in this position. Some of these reasons include the death of a family member or spouse, serious illness, divorce, unemployment, or uninsured loss.
It needs to have all the information about income, assets, and debts. This shows the lender that you cannot get another loan to help you until your condition improves. You may even need documented proof to verify your statements.
Step 3: Request an Application
This may not be as easy as you think. Lenders will not talk to anyone until they have been in contact with the homeowner. The lender needs approval from all of the necessary parties prior to any contact to get the application.
Lenders are never too excited about short sales. You may have to keep following up with them to get the information you need to move forward.
Step 4: List the Property
If you don’t have a buyer already, you will need to work with a real estate agent to list your home. Once a buyer comes along, the real estate agent will initiate the sales contract. This contract needs to be approved by the lender and is not final until the buyer and seller agree to all terms.
Step 5: Getting the Sales Contract
The purchase agreement needs to be approved by the lender. The contract must state that the deal is contingent on the lender’s approval.
The sales contract also needs a listing agreement showing the real estate agent commission and buyer’s purchase eligibility like a pre-approval letter from his or her lender.
The contract must also include an affidavit that there is no pre-existing relationship between the seller and buyer. It needs to show that the homeowner isn’t trying to assist the buyer for any reason, and that the price is in line with fair market value.
Step 6: Review from Lender
The lender then reviews the contract. They can choose to not respond, reject the offer, or outline other terms that might make the offer more acceptable to them. They could also just approve the offer.
Step 7: Present to Buyer
The real estate agents will present the lender’s response to the potential buyer. The contract may stay the same or the buyer may need to revise to meet the lender’s terms. The buyer then decides what he or she would like to do.
Step 8: Final Contract Approval
The short sale is complete after the contract is approved by both parties. The short sale property will then close. The buyer takes ownership and the lender receives all proceeds.
The original homeowner is then released from his or her mortgage even if the balance is not paid in full.
Benefits of a Short Sale to the Seller
It’s important to consider all the risks of a short sale. A short sale may help you in the long run if you experienced a major financial setback.
A short sale is much more favorable to your credit than a foreclosure. You may be able to get another home down the line, but if your home foreclosed, it would be hard to purchase another home.
You will also save money on home sale fees with a short sale. The bank pays the fees and commissions on short sales.
You can also save yourself some emotional heartache by avoiding foreclosure. You can say you sold your home and move on with your life.
Cons of Short Sales to the Seller
It’s important to also look at the risks and negatives of a short sale. There are some issues with a short sale.
First, you will not be able to earn any profit from the sale. The bank gets all the proceeds. If you want to have proceeds, you may have to list your home with an agent or contact a company that buys your home.
This means you will have less cash for a downpayment on a future home. You will have to start from scratch.
You also are in the lender’s hands when it comes to the sale. They have to give the green light for the sale to go through, so there is no guarantee that your home will sell even with a reasonable offer.
Looking to Sell Your Home Quickly?
Now that you understand the short sale process for sellers, are you ready to start the process? Do you want to avoid foreclosure?
If you want to sell your home for cash, contact me today to get a cash offer on your Wake County home.