Any homeowner can suddenly find they can’t pay their bills.
You might consider a short sale as a homeowner when you’re experiencing financial distress and can’t afford your mortgage payments. A short sale can be an excellent way to repay your lenders, but there’s a lot of misinformation out there that can make the process seem complicated. Read below to discover the most common misconceptions about short sales.
What Is a Short Sale?
A short sale occurs when your lender—usually a bank—agrees to take less than the amount you still owe on your mortgage due to your financial hardship. This is usually the consequence of a significant life event that has had a considerable effect on your financial circumstances, such as divorce or a medical emergency. Typically, the home will also be worth less than the remaining mortgage.
Misconceptions About Short Sales
A Short Sale Is Similar to a Foreclosure
When you’re having difficulty making your mortgage payments, you may consider foreclosure without realizing a short sale is a valid alternative. There are significant differences between short sales and foreclosures, and the former can be far more enticing. One of the most fundamental distinctions is that a short sale is voluntary, and you need permission from your lender. By contrast, a foreclosure is involuntary and happens when your lender takes legal action to seize possession of and sell your house.
Lenders Won’t Take a Reduced Payoff
Your home’s worth is based on recent comparable housing sales in your area, not the amount you owe on your mortgage. So if housing prices in your location plummet through the course of several years, you may be surprised to learn that your own home’s value could be worth less than what you first paid for it. Your lender will be aware of the market and reassess your home’s value, and they’ll be more inclined to accept a short sale because a foreclosure would result in them receiving the same amount as if they tried to sell the home themselves.
You Need To Already Be Behind on Mortgage Payments
You can petition your lender for a short sale as soon as you experience a sudden financial hardship rather than wait until you’ve missed mortgage payments. The sooner you begin the process, the better your chances of avoiding foreclosure are. Short-selling your home before you fall behind on payments will also help you avoid significantly damaging your credit.
Understanding the most common misconceptions about short sales can help you figure out your options before you reach the point of foreclosure. Life is filled with ups and downs, and you don’t need to feel embarrassed or ashamed if you can no longer afford your home. Know that you have options that can help you until you get back on your feet.