Short Sale Specialist

For many distressed homeowners, short sales are an alternative to foreclosure. Here are the steps sellers need to take in order to sell their properties in short sales:

1. Provide proof of hardship: You need to provide proof of hardship to your lender. The two most accepted hardship cases are proof that lower income has made your home unaffordable, or that you’re subject to a mandatory job relocation. Your lender will analyze your income and assets. If your debt-to-income ratio has risen, it will help your short sale approval. You will also need to provide a market analysis as well as indicate any liens on your property.
2. List your property: Once the lender has approved the short sale, you can list your property with a real estate agent. You’ll need to present any offers to the lender for approval. This process can take two weeks to several months. If you have a second mortgage, both lenders must approve each other’s terms, making the process longer.
3. Lenders approve the sale of the property: The lenders will review the buyer’s offer and decide if they will approve the sale. Once approved by the lenders, the short sale can close as soon as the buyer can get their loan approved, funded and closed.

Typically, your credit score will drop by 75 to 200 points after selling your property in a short sale, which is less severe than a foreclosure. The credit score drop will depend on whether the lender reports the short sale as “settled” debt or “paid” debt. You should try to negotiate for the latter, but the former is more common, and hits your credit score harder.

The short sale will stay on your credit report for seven years, but you can finance a new home purchase within one to four years of a short sale depending on credit score, loan type and down payment. With a foreclosure, that time ranges from three to seven years

How Do Short Sales Work for Buyers?

Buying a short sale property can allow buyers to purchase a home at a discount, but the downside is taking significantly longer than the regular sale of a property. Here are the steps a buyer needs to take in order to purchase a property in a short sale:

1. Get pre-approved for a mortgage: Buying a short sale property begins the same way as buying any other home: get pre-approved by a lender. They will tell you how much you can afford, how much cash you need, and what your monthly costs will be.
2. Shop for properties: If you find a short sale property that you want to purchase, you must work with your real estate agent to identify how much the seller owes, how many loans they have, and whether they’ve been approved by their lender(s) for a short sale.
3. Make the offer: Making an offer on a short sale is the same as offering on any other property. However, it may take more time. You work with your agent to identify fair market value based on recently sold comparable homes nearby, and write your offer price accordingly.

It can be tricky. The short seller’s lender will often require that you make a loan application with them to ensure you’re qualified, but that lender cannot require you to use them. Most rate locks are only for 30 to 60 days, but the seller’s lender can take months to review and approve your offer. As such, you won’t be able to lock your rate right away, but you can get the rate outlook for your final terms and costs.

While waiting to lock, you’ll need to advance the loan process for purchasing the property. Appraise and inspect the property as your lender requires, because the seller’s lender may also require these reports. When the seller’s lender has finally approved the short sale, your loan will be mostly done and you’ll be able to close quickly. Short sales are known for taking more time than usual to complete, so it’s a good idea to do everything you can on your end. Your lender and real estate agent should be very familiar with short sales, and they can help you understand all the steps you need to take for the short sale transaction.