Wondering “what is a short sale and how do they work”? Well you are in the right place!
In other words, if you must sell your home that you owe $700k on, but the home is only worth $600k, the bank may approve a short sale and allow you to sell the home for a lower amount.
Why are houses sold on a short sale?
A short sale comes into play if a home is “underwater” and the owner owes more than what the property is worth. In this case, the property cannot be put on the market without the homeowner having to come up with the difference. If the new purchase price of the property cannot pay off the full home loan amount and the homeowner cannot come up with the shortfall, this puts all parties involved in a tough position.
How long does a short sale take?
The length of time to complete a short sale can vary greatly and is dependent on numerous factors, including one of the most important, who the lender is. Some lenders can approve a short sale in as little as two weeks, whereas other lenders can take a year or longer. Most short sales can be completed in a three to five month period.
Why would a bank agree to a short sale?
Typically, a homeowner will choose to sell their home on a short sale in order to avoid a foreclosure. If the foreclosure is completed, it allows the lender or a cash buyer to take possession of the home. This process can be tremendously time consuming and costly for lenders.
The foreclosure process is dependent on the state that the home resides in and each state has a different process. Each foreclosure process can range anywhere from months to years and, in turn, can cost lenders tens of thousands of dollars in legal fees and holding costs; this process is also most commonly referred to as ‘REO,’ or Real Estate Owned by lender.
With all of the time and money that goes into foreclosures, lenders will more frequently than not choose to accept a loss from a short sale. We would advise a homeowner in a similar situation to pursue the short sale in good faith.
Short Sale Eligibility
Certain qualifications have to be met in order for a short sale to be considered or approved by the lender. Each bank will have different requirements for short sale approval, typically a bank will wakt to see:
- Homeowner behind on payments
- Property in the red
- Homeowner is experiencing financial hard times and does not have significant assets.
Not all short sales require the homeowner to be behind on payments or experiencing significant financial trouble, but these do help qualify a home for a short sale. Remember, the bank will want to do what is in the bank’s best interest.