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Mortgage Troubles? Know Your Options
The housing market has really been sinking, and although we’ve been lucky in the western U.S. real estate market with rising sales lately, overall, the market still stinks. If you are one of the unlucky people faced with a mortgage you can’t afford, there are a couple of options out there.
If you stop making payments without pre-arranging a relief period with your lending institution, then you become in default of your mortgage. When you are in default, the lender may panic and demand the entire mortgage be paid off. If you cannot do that, the lender will take possession of the property, which they then usually try to sell to get their money back. While it is true that you can stay living in your home during the foreclosure process, for up to a year in some states, foreclosure is very bad for you financially, as it leaves a black mark on your credit rating which could take many years to recover from.
Another option is a short sale. A short sale is when your lending institution agrees to accept a little bit less than the amount they originally loaned you in exchange for calling calling things even. You should know that many banks won’t do them, though, and not all properties are eligible for a short sale. Also, with a short sale, you have a lot of convincing to do. A foreclosure is something that happens to you after you’ve defaulted, while a short sale is something you will have to work for. You will have to approach your lending institution about the idea, give them a letter explaining why you are in the financial situation that you are, and disclose to them all your income and assets. You will also need to give them an estimate of what an accredited Realtor® thinks the house will sell for, based on an analysis of market value. The bank will also need to know all the closing costs you anticipate having. A short sale won’t be considered just so that your house can sell faster. The bank needs to see that there just isn’t enough equity in the home to repay the loan they have given you, so you will need to provide them with the market information to show this.
With a short sale, you will be responsible for selling your home, whereas in a foreclosure, the lending institution sells it. This means you need to deal with your home being listed and shown, plus packing and moving. Once you have an offer, you will need to let your bank know, and they will decide if the offer is enough to repay your mortgage loan. Do yourself a favor and give the bank a deadline by which to accept or decline the offer, as both your sale and the buyer’s buying process will be stalled until you get a yes or now from your lender.
Remember, with a short sale, you don’t get any money for the sale of your home. Your lending institution isn’t even making all their money back. It will still take you about three years before another lender will even consider lending you money again. So it is really no better than a foreclosure for your credit rating.
If you are defaulting on your mortgage and need to negotiate a short sale with your lender, do yourself a favor and find a Realtor® experienced in short sales. They will help you with the complex negotiations both with your bank and prospective buyers.
Author: Josh Sloan
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