In part-1, we discussed, why should you prefer short sale over a foreclosure. A foreclosure is an expensive option. You lose your home, and you are still liable to pay the remaining balance.
On the other hand, the lender forgives your debt after a short sale. In this article, we’ll discuss the short sale eligibility criteria and what you need to do to complete the process.
Eligibility Criteria to Qualify for a Short Sale
Your home must be underwater
That’s not a written requirement. However, your home has to be seriously underwater before the lender reviews your application.
It is not possible to pursue a short sale if the price difference is only a few thousand dollars. Let’s say the value of your home is $175k and the pending mortgage is valued at $165k. At this stage, it won’t be fruitful to complete a short sale. Selling an undervalued home requires money and effort. You’ll need the service of a realtor, attorney, title company, appraiser, and home inspector. All these steps cost money. Saving a few thousands is not worth the effort.
You cannot pay the mortgage
It is obvious. You cannot convince the lender to do a short sale if you can pay back the loan. You took the loan and it is your responsibility to pay back the amount. Lenders will only consider your application if short sale is their least expensive option.
To be eligible:
- You should not have any assets that can be converted into cash.
- The seller should not be receiving any cash from the sale of the home.
You must have an offer
You cannot complete a short sale without having an offer. There must be a buyer willing to purchase your home. You’ll need to forward this offer to the lender.
Submitting a Short Sale Package
Once you are ready to pursue a short sale, you’ll have to prepare a short sale package. The package must contain the following:
- A hardship letter: Explaining how you got into the financial trouble, and why you are unable to pay back the mortgage. Be genuine and consult a real estate solutions company if you need help.
- Lenders would see past tax returns and financial statements for the previous three months.
- Last two pay stubs
- Repair estimate (If your home requires repairs)
- Broker price opinion (You can forward the appraisal report, but some banks might require BPO)
- Sale contract
What if My Home Needs Extensive Repairs?
Selling the home in the retail market is a challenging task. You must make sure that your home is in a top-notch condition. If that’s not the case, you might have to repair the house.
The question is, who is going to pay for repairs?
For the seller, it doesn’t make sense to pay for an underwater home. Your home has already lost its value. Spending more money won’t help you recover your investment. For the same reason, lenders are not willing to pay for repairs. That brings us to a critical point.
The buyer has to assume responsibility. You need to find a buyer who can buy your home as-is. Later on, they can repair the property and renovate it to their liking.
A short sale is the combined effort of real estate attorneys, title agents, and the legal team. The sale proceeds will be used to pay the crew. After subtracting these costs, the rest of the money is used to pay off your mortgage.
If you would like to avoid commissions and repairs, you can contact a reputable cash buying firm in Connecticut. You’ll get a guaranteed, fair cash-price offer. The expert team can also help you negotiate a short sale with your lender.