What Is a Short Sale?
In residential real estate, a short sale is when the home is sold for less than the outstanding mortgage amount. For instance, suppose you initially borrowed $150,000 for your home. After a few years of payments, you now owe roughly $115,000 on it, but you find you can’t sell your home for more than $100,000. The price is less than what you owe on the mortgage and would therefore not technically pay it off if you were to sell.
When Does a Short Sale Happen?
There are a couple root causes for a short sale. The first is if you are “underwater” on your mortgage, meaning the value of your home is currently less than what you owe to your lender. A home’s value may drop over time, especially if it’s older or if it has fallen into disrepair.
The second instance is when you are in a state of financial distress and are having trouble making house payments. To get out of this situation, one option is a short sale. This can get your home sold quickly and minimize your losses.
Problems with a Short Sale
Naturally, there are a few problems with a short sale. If you are selling short because your home has dropped in value, it might still be hard to sell the home since the process tends to be more complex and drawn out.
Additionally, a short sale can severely damage your credit, and that can hurt your future borrowing opportunities and therefore limit housing choices after the sale.
Finally, your lender will need to actually approve a short sale, and that can take a while. If they do approve, they might still seek to recover the outstanding amount on your mortgage from you after the sale, so it can haunt you for quite a while.
Alternatives to Selling Short
Fortunately, there are some alternatives to attempting a short sale. It might be possible to renegotiate your loan to ease your financial burden. Another way is to sell to a home investor. This way, you avoid fees and closing costs, therefore increasing the amount you could get for the home.
To avoid a short sale, call My Fast Home Buyers to schedule an appointment. We’ll come review the property, make a cash offer, and close the deal within a week if you accept.