Do I Qualify For A Short Sale?

A short sale occurs when a homeowner sells a home for less than what is currently owed on the property. A short sale cannot transpire without the permission of the lender who owns the property mortgage. Although the lender usually incurs a loss by allowing a short sale to take place, it is generally more cost effective than going through an expensive foreclosure process.

Most lenders prefer that short sales are among the last options to consider before moving forward with foreclosure proceedings. For this reason, the criteria used to determine which homeowners and properties qualify for short sale is very thorough. Individuals seeking a short sale will first have to show that they are experiencing financial hardship and that they are currently unable to meet the financial obligations of their mortgage agreement.

A lender will generally require that homeowners submit a letter of hardship detailing their financial woes and the reasoning behind their inability to make the monthly mortgage payments. In addition to the hardship letter, the lender will require that borrowers submit a complete short sale package detailing their financial situations, including submitting bank statements and current pay stubs.

If the homeowner submits a thorough and convincing package, the lender will assign the case to an asset manager who will review the details of the package and determine if a short sale will be allowed.

There are genuine reasons that can convince a lender of financial hardship including:

  • Divorce
  • Medical emergency
  • Financial Bankruptcy
  • Death of a partner or spouse
  • Unemployment

The short sale package must contain sufficient proof of financial hardship. Depending on the particular lender, the following documents may be required in order to qualify for a short sale.

  • Most Recent Pay Stubs
  • Copies of Previous Bank Statements
  • Statements of Credit Accounts
  • Credit Report highlighting your current liabilities
  • Tax Returns for your business if you are self employed
  • List of Personal Assets and Liabilities including a household budget

The lender will also have to confirm whether the home values in the neighborhood have declined to a level lower than the mortgage balance. Lenders will compare recent property sales in the area by checking MLS listings and consulting with Realtors in the area.

In order to qualify for a short sale, borrowers must generally be more than 90 days behind on their mortgage payments. The default on mortgage payments will give the lender a good sense of whether the risk of foreclosure is evident, and whether a short sale might help circumvent the foreclosure process for both the lender and the homeowner.

Homeowners also have a good chance to qualify for a short sale if they have few assets that are of value. The lender will generally analyze the borrower’s financial statement to see if there are any assets that can be liquidated in order to fulfill the terms of the mortgage agreement.

The short sale process can be very tedious for distressed homeowners. After submitting a short sale package to the lender and receiving an approval, borrowers must still find someone that is willing to purchase their house. Because of the complexities that are present during a short sale transaction, it is advisable to seek the counsel of an experienced real estate professional.

Find out more information about short sales at our short sale guide website: The Short Sale Mentors