What to expect if you're considering a short sale

There are many homeowners who must sell their house, but its value is less than the amount owed to the lender. A short sale is one in which the lender is willing to take less for the property than the amount you owe on the mortgage.

For example, if you owe $200,000 on the house, but market value has dropped to $150,000, the bank may allow you to sell the house for $150,000 and will either

• Discharge the difference between what’s owed and the sale price. If the lender discharges the debt, it is likely to show up on your credit as “discharged debt”. It is up to the lender to decide how to report the transaction to the credit bureaus.
OR
• Ask you to sign a promissory note for some or all of the difference. If you sign a promissory note, your credit is not affected. Usually the terms are favorable with a low interest rate and long payback period.

Do you Qualify for a Short Sale?

Lenders typically won’t approve a short sale unless the seller is having major financial difficulties and can’t afford to make their mortgage payments. This could be the result of divorce, loss of job, illness, or something else that has caused financial problems.

In order to qualify for a short sale, you must be able to prove to the bank that you can’t afford to make the payments, by giving them the details of your finances.

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What to Expect if You're Considering a Short Sale