What is a Short Sale and How Does it Work?
January 10, 2024
January 10, 2024
If you are behind on your mortgage payments or underwater on your mortgage, a short sale can be an attractive alternative to foreclosure. However, there are complications and downsides you may want to consider.
A short sale occurs when a homeowner sells their home for an amount less than the full amount owed on the mortgage. But because a short sale is often undertaken as an alternative to foreclosure, the process can only begin with the approval of your mortgage lender. In some cases, your lender may even offer you an incentive to help you transition into more affordable housing.
Here’s what else you need to know about a short sale.
There are several steps you must go through to complete a short sale, outlined below.
The main benefit of a short sale is foreclosure prevention. Your home will not go into foreclosure, allowing you to minimize negative impacts on your credit score. In addition, all or most of the debt you carry with your mortgage will be absorbed through the purchase of your home or forgiven by your lender.
As with a foreclosure, a short sale will damage your credit — but not to the same degree. In a short sale, the seller forfeits all negotiation power on the sales price of the property and does not see any of the proceeds from the sale. In addition, you must complete a waiting period before qualifying for a new mortgage, which may be anywhere from 2-7 years.
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