Short sale is an alternate to bankruptcy or foreclosure proceedings in real estate. Home owners who are incapable to pay back the mortgage loan on the property sells the property less than the outstanding loan and the entire dealings goes towards the repayment of loan to the lender or the bank. Here the mortgage lender or the bank agrees to reduce the outstanding loan amount on the home due to the economic hardship of the borrower wherein he is unable to repay the loan further.

In short sale the lenders or the bank approves the sale process of the house when they make out that the loss they will bear is negligible as compared to foreclosure. But the transaction of property proceedings is completely to the approval of the bank or the lender. They can approve or disapprove the transaction as according to the payoff they will be receiving on the sale. However all the lenders or the banks have different set of parameters for the procedure of a short sale.

As a seller your credit report in case of short sale seller will be affected. You will come under the scrutiny of the mortgage lenders and the banks in case of fresh loan approval but still the case of will be well off than bankruptcy. You must understand that although bankruptcy does not stop you from buying home but in this case for approving mortgage loan for buying house you need big down payment and be ready to pay higher interest rates on the loan taken. Short sale option is considered to be much better option for owners in financial hardships.

You must also understand that every property or home owner is not eligible for short sale. This procedure has some set criteria which have to be fulfilled by the home owner and the property before the deal proceeds. Here are some criteria for short sale. First, the home owner cannot repay the loan further due to financial hardships. However cases like moving out, miserable neighbors or bad buying judgment does not count in financial hardships. Secondly, if the existing price of the house is less that the loan amount due like in case the market rate of the house has dropped. Thirdly, the mortgagee has no other asset apart from the said property to repay his debts and fourth, the mortgage loan is in or near in default. At times even in current the bank might consider short sale if the value of the property has depreciated.

Sometimes even if you fulfill all the conditions you still are not eligible for a short sale if you do not have a proposal from the buyer because the offer that the buyer make to you has to be accepted by the third party, the lender or the bank in case of short sale. Once you qualify for a short sale you must always remember that this will influence your credit report.

As a buyer of short sale property there are important things that you must consider before doing the transaction. Like knowing the total outstanding amount the seller owes to the bank you can always quote the right offer so that it is neither below nor overpriced. Also the offer has to be approved by the lender too for short sale transaction so you must understand all pros and con of the transaction as the entire deal might take months. Also find out if the existing home owner is in default or not because you do not want to make any investments with any extra expense in future.

This entry was posted on Tuesday, January 19th, 2010 at 8:53 pm and is filed under Bank approved short sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.