In a down housing market, or when a person falls into a situation where their personal housing market is down, circumstances may lead to having to sell the home.
When a home cannot be sold for what is owed on it, then homeowners must engage in a short sale.
What is a Short Sale?
In real estate, a short sale is executed when the homeowner cannot afford the payments on his or her home, the property value has decreased significantly, and the lender realizes that it would be better to retain something rather than nothing from the current contract they have.
How to Begin a Home Short Sale?
For a homeowner, there are several steps to starting a short sale. The first is to stop making payments on the home. Lenders do not engage in short sales on properties that are current. This money that is not being made toward house payments should be saved up for when one moves. Moving is expensive, and the place where one rents will require a double deposit due to bad credit.
Next, contact the financial institution holding the note on the home. Seeing them in person is best if possible, but on the phone is okay, too. It is not uncommon that a person can stay in the home they live in for up to six months before being foreclosed on. After two or three missed payments the bank will probably be in contact.
During this time, homeowners can begin to inquire about setting up a short sale, which is much better than being foreclosed upon.
A Short Sale is Better Than a Foreclosure
There are several reasons that make a short sale better than a foreclosure. The first pertains to one's credit, and another is more personal.
When a person has a short sale on his or her credit report it will show the short sale as well as missed payments on the mortgage. A foreclosure will show the same things, but be worse in the eyes of future lenders because a short sale puts a large portion of cash back into the hands of the previous lender whereas a foreclosure left them all the responsibility of trying to get what they could back.
A second reason a short sale is better is because the person executing it took control of a bad situation. When people are presented with circumstances that will not work in their favor, it's best to pick one, stay committed, and make the best of it. In this case, the decision to stop making any payments, save that money, and then prepare to make a change is much better than struggling while losing everything, and then moving out with nothing to show for it.
Having to engage in a short sale can be difficult emotionally and financially, but being foreclosed on would be worse in most cases. For those in this situation, action can be empowering and more financially responsible. Inaction can be heartbreaking and leave one broke.
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