A Short Sale: How Will I Know If I Qualify For One?
Posted by Usual in Lender Approved Short Sales, tags: Know, qualify, Sale, ShortIf your mortgage loan balance is higher than the value of your property and you don’t have the money to make up the difference, you probably want to know whether you’d qualify for a short sale. To find out, we have to look at a short sale from a bank’s perspective. While there are many factors that banks consider, getting your lender to approve your short sale application generally boils down to 3 main challenges:
1) Getting your lender’s attention and giving your lender a reason to discount your mortgage loan
2) Demonstrating that you have a legitimate financial hardship preventing you from paying your mortgage
3) Getting your lender to accept that the price your buyer is paying for your property is close enough to your bank’s independent valuation of the property
To understand why these are the three key requirements, we have to understand how banks make money and how they limit losses. Banks earn profits by collecting interest payments on money they lend. It stands to reason then that in most cases banks won’t even consider a short sale application if the borrower is currently paying his mortgage. However, when those payments stop, instead of making money, the bank is now losing money and as a result has an incentive to limit those losses. Although banks lose money when a property is sold via short sale, the sale of the property allows the bank to recover a portion of the defaulted loan and get the ‘bad loan’ off its books. Banks always take notice when they don’t get their money and borrowers who miss mortgage payments force lenders to at least consider discounting the mortgage.
The second major challenge in qualifying for a short sale is demonstrating that you have a financial hardship. Banks lend money expecting to get that money back, which is why they need a very good reason to accept less than the total amount that they are owed. The most compelling reason for a lender to accept less than the total amount owed is that the borrower doesn’t have enough money to make the interest payments or to pay off the balance of the loan. As the saying goes, you can’t squeeze blood from a turnip. Even so, the borrower must prove his financial hardship to the bank’s satisfaction with supporting documents like tax returns, bank statements and pay stubs. Demonstrating financial hardship is critical to getting your lender to approve your short sale.
The third key challenge in getting a short sale approval is showing that the price your buyer is paying for your property is indeed the property’s current market value ( that is current market value in the eyes of the bank!). The simple truth is that a property is worth what a buyer is willing to pay for it. Nevertheless, just like the bank has the final say when it comes to approving your short sale, they also have the final say with respect to the market value of your property. In spite of this, documenting that similar properties in your neighborhood have recently sold for a similar price will help persuade the bank that the price your buyer is paying is sufficient.
In summary, to qualify for a short sale you must prove you have a financial hardship and that you are selling your property at current market value in the eyes of your lender. More importantly, you have to give your lender a good reason to discount your mortgage. Since non-performing loans normally reduce the amount of money a bank can lend, when a strong case for a short sale is made, your bank should want to help you get rid of both your property and the mortgage loan attached to it.
Gerald Lucas, ‘The Short Sale Authority’ http://performanceshortsale.com/ has successfully negotiated hundreds of short sales over the past decade he has spent in the real estate business.
Lenders and Short Sale: Things You Should Know about Them
Posted by Usual in Bank approved short sales, Lender Approved Short Sales, Licensing Real Estate Road Kill, Real Estate, Short Sales, foreclosures, tags: about, Know, Lenders, Sale, Short, Should, Them, ThingsWhen you are starting to be behind your mortgage payments, you need to avoid undergoing foreclosure. The negative impact of foreclosure is deeper compared to other ways of settling the unpaid debt. This can scar your credit for years and this is a much- dreaded way to lose your homes.
This is the reason why most people would look into the possibility of short sale. Undergoing short sale does not mean you can escape the negative effects on your credit. However, it certainly has more advantages compared to foreclosure. One, you can be eligible to get a new mortgage after 2 years as opposed to foreclosure which is after 5 years. Second, you can keep your dignity because. Third, credit scores deduction can be as low as 50 points and the effect can be as little as 1 and a half years.
There are so many good things about short sale. However, the challenge lies on how to get your lenders approve your offer. Short sale is known to be a tedious process in the sense that lenders are being critical about it. They want to ascertain well if your offer is worth absorbing the loss.
One way to get your lenders to accept your offer is by understanding their point of you. There are certain things you should know about your lenders and short sale.
Reasons why lenders would settle for short sale
You may wonder why lenders would allow a loss for sale in exchange for the forgiveness of you debt. Well, here is the real reason. They want to reduce their number of non-performing loans.
In lending, loans are considered performing if the borrower is able to keep up with payments on a regular basis. However, once the borrower starts to be in default for 90 days or more, the loan will be considered non-performing. Lenders do not want them because if their number rises, they could be in trouble financially. Non-performing loans can have a negative impact to their financial statements and eventually would put them out of business.
This is the reason why lenders would opt for a short sale. This transaction can minimize the number of non-performing loans of the bank. They would take their chances from this transaction, especially if they already have an increasing number of non-performing loans.
On the other hand, short sale loss is usually lesser than foreclosure. Banks can set an allowable loss for short sale to take place. Moreover, banks would also avoid the hassles of foreclosure if they accept short sale offers.
Additional information about lenders and short sale
The chances of being approved of your short sale offers lies on several considerations. One, if the application of short sale falls within the 180 days grace period before the non-performing loans of the bank will be considered a liability. And two, the loss of short sale is acceptable for the third party investors involved like Fannie Mae and Freddie Mac. For Fannie Mae, it is acceptable if the loss is less than foreclosure. For Freddie Mac, it is acceptable if the offer reaches 90 to 92 percent of the BPO or Broker’s Price Opinion.
Learn more about short sale properties by visiting East San Diego CA Short Sale Homes and Short Sale Real Estate Property in East San Diego.
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