How Does a Real Estate Short Sale Work?

 There are three types of house sales. The first one is the standard sale, then comes the foreclosure sale, and the last one is the short sale. This article will discuss all the short sales made for real estate and understand how exactly it works.

A short sale is usually carried out when the property owner wants to sell the house less than what they owe on the mortgage. Before a short sale agreement closes, the seller's mortgage lender should agree to its specific amount.

Understanding a Real Estate Short Sale

We already know what a short sale is and what it needs to undergo before closing in a deal. Hence, let us further understand what it is. For example, you want to sell your home  for $200,000. However, you have a remaining mortgage of $270,000.

In the example given, you can see the $70,000 difference, where you can subtract the selling and closing costs, and the total will become the deficiency. With the example, you can better project the possibilities of what to expect in a short sale.

Before you decide to short sale your property, you should still consider selling it in a standard sale. You can use a home sale proceeds calculator  to have a prognosis of the possible sale you can get.

In addition to the lender's approval of the house’s set sale amount, the lender will require complete documentation explaining the short sale. This is important for their part as they will be losing money in this transaction. As a seller, you have to provide a justifiable reason.

Just a heads up, though. A short sale is a lengthy process with a lot of paperwork to consider in every transaction. A short sale typically takes up to a year to process compared to other types of house sales.

Does a Short Sale Affect Credit Score?

Regarding the seller's credit score, carrying out a real estate short sale won't harm any credit records. You will not find the term "short sale" anywhere on your credit report. Instead, you will find a "negotiated settlement" for your mortgage.

The damage a short sale can do to your credit record will depend on many factors, such as prior credit history or if you were late in your mortgage before you sold the property. If you have a good payment history, there is nothing to be worried about.

A study conducted in 2011 suggested that consumers who have the highest credit score experienced the biggest hit on their score, dropping it up to 160 points. They have conducted this study in three consumers with a credit score of 780, 720, and 680.

Although it may not damage your credit score, it is expected that credit card companies will lower your credit limit after the short sale settlement is reported to the credit bureaus. This happens as the credit card companies see the "negotiated settlement" status on your report that will indicate that you are having trouble with your finances.

The Benefits of a Short Sale to the Seller

There are benefits that a seller can acquire when they choose to short sale their property. Here are the benefits of a short sale that you need to consider.

●      Advantages in Credit Score

In a personal credit score's perspective, a short sale is highly preferred than a foreclosure sale. Foreclosure is one of the heavy factors for a credit bureau to issue a low credit score.

Opting for a short sale will not only secure the seller's credit score, but it also helps it to stay in the game that will come in handy if the seller plans to purchase another property in the future.

●      Emotional Advantages

A mortgage is one of the pinnacles of a person's life. A seller who chooses to short sell their property avoids the worst-case scenario that can happen, which is a property foreclosure.

Knowing that you do not need to deal with a foreclosure will spare you from the emotional hassle. Nobody wants to stain their financial reputation, much more their credit reports for a foreclosure. This is why choosing the short sale will have a significant benefit in the emotional aspects.

●      Can Save on Home Sale Fees

A seller needs to carry the burden of fees in a standard home sale, such as the real estate agent's commission of 3%-6% of the total home sale. But on a short sale, the bank pays these fees, which leaves you with no burden to bear after the sale is made.

Takeaway

One thing to remember about a short sale is that you cannot earn a profit out of it. It is simply letting go of your property  to save your credit reputation by avoiding your property's foreclosure. And after familiarizing how a short sale works and its benefits, you can now decide whether this is a good option for you.