A short sale is an attractive alternative to foreclosure, mainly because the impact on your credit is far less severe.  However, just because you owe more on your mortgage than your home is worth doesn’t necessarily mean that a short sale is a viable option.

In a short sale, the lender agrees to accept a pay-off on your mortgage for less than the amount owed.  Logically, the lender is not going to agree to receive less money if there is evidence that you can continue to pay your mortgage as promised.  Thus, a homeowner hoping to sell their home in a short sale must demonstrate that they can no longer afford the mortgage payments. 

The first question the lender will ask is “What happened?”  At the time of loan origination you were able to make your payments….why not now?  You will be asked to identify one or more recent hardship factors that have negatively impacted your ability to pay.  Examples of hardship factors include: 

  • Illness/Disability                                             
  • Death of a Spouse
  • Unemployment                                               
  • Reduced Income
  • Medical Bills                                                   
  • Too much Debt
  • Divorce/Separation                                        
  • Military Service
  • Incarceration                                                  
  • Business Failure

The lender will also request that you complete a financial worksheet that lists all of your monthly expenses and income.  You will need to provide bank statements and pay stubs to document the information on the financial worksheet.  Contrary to popular belief, it is OK to have a small amount of money in savings and lenders do not expect you to drain your 401K to pay your bills.

So the bottom line is that if you have experienced an event(s) that triggered a financial hardship and your monthly expenses are greater than your monthly income you probably qualify for a short sale.  Please feel free to contact me with specific questions about your situation.

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