A short sale can be a great way for a distressed homeowner to sell their home if they owe more then the home is worth. However, there are many myths regarding the short sale process, and I wanted to stomp some of those out with this post.
Short Sale Myths
Myth – It’s better for a bank to foreclose on your home then short sale…
There are a lot of people that think banks want to foreclose on a home rather then deal with a short sale. That’s just not true. It costs banks thousands of dollars to go through with the foreclosure process. According to the Joint Economic Committee of Congress, they estimate the average cost of a foreclosure is roughly $77,935. That number is staggering when compared to a short sale. To learn more on where that number came from read: Foreclosure Costs.
Compare to the cost of short selling a home. Depending on what you can get your home to sell for, the bank may come out with a number fairly close to what is owed on the home. If you think about it, the bank has two options: foreclose or approve the short sale. If they foreclose, they still have to get as much money out of the property as they can just the same as if they short sale.
With a short sale though, there is someone in the home, and they will usually keep it maintained, allowing for a better price on the sale. Foreclosures usually end up sitting vacant for a long period of time and the bank has to go in and either repair the home or they have to reduce the selling price costing them more money.
Myth – In order to get approved for a short sale, you have to stop making payments…
If you can still pay your payments but can document hardship such as lower income, job loss, medical bills, or anything else that has put a strain on your financial situation; there’s a chance your bank will still approve your short sale without missing a payment. Not every bank will allow this, but before you try to get your short sale approved, the last thing you want to do is stop making payments if you can still afford them.
The key is to contact your bank immediately once you know that you eventually won’t be able to make your house payment. Contact your bank and discuss your options. If you wait to long it may end up costing you a lot of money, stress, and your home.
Myth – I waited to long and and now the bank is going to foreclose…
Starting the short sale process is not only confusing, it’s emotionally draining. Knowing that you can no longer afford your home is an absolute nightmare. Even if you receive a foreclosure notice, contact your bank, and tell them you’re trying to sell your home. Contact a real estate agent that is an expert with short sales and ask them if they can help you out.
There are many real estate agents out there, as well as attorneys, that know how to deal with banks that have already begun the foreclosure process. Most lenders will stall a foreclosure if you can show that you are working on getting your home sold. In today’s market, banks are even more willing to work with you as more people are struggling to stay in their homes.
Myth – Short selling a home is embarrassing…
Short selling your home should not be embarrassing. According to a recent number released by Zillow, 14% of all homeowners are in a negative equity situation, which is 1 in 7. You are not alone. It’s important for you to realize that starting the short sale process is going to save you from foreclosure. You may even be able to buy a new home through FHA financing if you don’t miss your payments during the process. Here’s what FHA says about the time it takes to buy a home after you short sale:
FHA Guidance on Short Sales Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.
Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g
However…
Guidance on Borrowers current at the time of Short Sale Borrowers are considered eligible for a new FHA-insured mortgage if they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.
Reference: For detailed information, see “Short Sales” at 4155.1 4.C.2.l.
This is true as long as you can afford the down payment on the home and you qualify for the loan to buy the home. If you were more then 31 days late on your payments it will take longer to qualify for affordable financing, which is why it’s so important not to feel embarrassed and contact your bank immediately to work out a solution.
Myth – Short sales never get approved…
True, short sales can be a hassle, dealing with banks and red tape is never fun. But short sales are approved all the time. There are 1,000′s of agents out there where all they do is short sales. President Obama recently introduced the Home Affordable Foreclosure Alternatives (HAFA) short sale program that was designed to increase the amount of short sales banks approve. Short sales are a common occurrence in today’s real estate market and people are experiencing successful short sales everyday.
Truth – Short sales are difficult and it’s important to get experienced help when dealing with the legalities.
The short sale process is a legal process and you should get many people involved. During your process you should consult a real estate agent that has experience with the process, an attorney for legal issues, and your accountant. Short sales are scary to people only because they aren’t sure what will happen. If you use the many professionals out there to explain the process, research online, and get the facts, you will learn that what you’ve heard about short sales is just a myth . Avoid foreclosure and talk to a professional about your short sale options.
If you need help with the short sale process in Cache Valley, please conact our Certified Distressed Property Expert Lisa Udy at 435-881-3022.
Looking to buy Cache Valley short sales? We can help you with that to.
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