A short sale is a way to keep a home from going into foreclosure, but the process isn't always well understood. Sherwood Park homeowners considering a short sale will need to take into account everything from their credit score to their lender to the appraisal value of the home. Before getting started, here are a few facts that can help homeowners navigate the system.
Credit Scores and Short Sales
Selling a home through a short sale starts with understanding the consequences of the alternatives. If the homeowner is unable to catch up on their mortgage payments, they may only have a choice between foreclosure and a short sale. Both options will affect a credit score, but the foreclosure will be worse. A short sale may be able to salvage a person's score, depending on how the debt is reported and how many payments were missed. This will have a major effect on where the owners will live next (whether renting or buying) and how they're able to borrow in the future.
The Nuts and Bolts of Short Sales
Short sales are generally approved when buyers owe more on the property than its estimated value. If the loan has gone into the secondary market because the lender has labeled and sold it as 'bad debt', then the lender will need to appeal to a mortgage association in order to negotiate with the owner. If the owner was required to have lender insurance on the home (because they couldn't achieve 20% equity on the home), then the insurance company will need to be alerted as well.
Understand the Lender
As easy as it is to vilify the lender, it makes more sense to try to understand where they're coming from. Lenders want to give out money and collect interest—they do not want to hire a real estate agent and arrange for the home to be auctioned off. Because of this, they're willing to work with sellers who will do the work for them. This is why a short sale exists as an alternative to foreclosure.
Instead of lenders having to complete the repairs and negotiate contingencies with buyers, they agree to a short sale where they take a lower price for the home so they don't have to do the additional work. The lender will still need to approve the terms of the sale, but they won't make the arrangements. So the first step is to talk to lenders to see what kind of deal can be worked out.
Talking to the lender about the circumstances behind the finances is crucial both before and during the short sale. Updating them can prevent the loan from being sold in the secondary market and increase the odds of their agreeing to favorable terms for the owner. There's a lot more leeway than most people realize. They just need to step up their communication skills.
How to Price a Home
Lenders need to agree on the price of the home before it's put on the market. This is where having a real estate agent that specializes in short sales can really come in handy. A real estate agent will give everyone a better idea of what they can expect.
From showings to financing, short sales are not about rushing the process. In certain parts of Canada, homes are sold as-is, meaning buyers can't sue the seller because of a major defect in the home. This doesn't mean there will be no home inspection, but it can take some pressure off the seller.
Additional Tips to Get Started
Expecting certain details can make it easier to navigate a home sale:
- Deadlines: Lenders are going to take their time to approve the sale. They're analyzing not just the terms of the sale, but also the conditions of the loan dismissal for the original owners.
- Buyers: The buyer's loan will be different on a short sale than a conventional sale. This can make it even more likely that the financing will fall through at the last minute.
- Terms: Lenders have the right to set their own terms for the short sale, and these terms can get lost in the fine print. Sellers need to be careful before signing.
Real estate agents can tell sellers that some short sales can be mutually beneficial for all parties. Some lenders will go so far as to split the difference between the loan price and the sale price of the home. Working out the terms starts with communication and having a little expertise on the owner's side.
By Justin Havre