Owing more on a primary mortgage than your home is worth puts your mortgage lender in the driver's seat for approving offers to buy your home. Mortgage lenders may approve a short sale with or without input and additional requirements from mortgage insurance companies or government agencies. Here's how to maximize your chances for getting a short sale approved:
- Work with a real estate professional specializing in short sales.
- Establish your home's current value by requesting at least two broker price opinions (BPOs) from real estate brokers specializing in your neighborhood.
- If possible, obtain your mortgage company's approval before listing your house for less than the amount required for paying off your mortgage in full. Not all lenders are willing to do this; many require an offer before approving a short sale.
- Be prepared to contribute toward the mortgage lender's losses: Mortgage lenders expect homeowners to share in the losses associated with a short sale. Your mortgage lender will require extensive documentation of your finances including employment verification and income from all sources, a statement of monthly financial obligations and assets including monthly household expenses, credit card debt and other liabilities. Expect to list assets including bank accounts, investments, and others. Contributing toward a short sale can make the difference between having a "paid - satisfactory" appear on your credit reports or having a foreclosure or charge-off on your credit history.
- Understand why delays occur: Approval for a short sale starts with the servicing company that accepts your mortgage payments. The mortgage servicing company is required to gain approval from the owners or investors of your mortgage as well as from your mortgage insurance company if applicable. Cases involving mortgage insurance or FHA loand require approval from these entities via your mortgage servicing company.
- Offers and approvals can change: Although you've submitted a short sale offer to your mortgage lender, the buyers may request a home inspection that reveals that repairs are needed, and are requesting (a) that the repairs be made at the seller's expense, or (b) that the sellers credit the buyers with a specific amount of cash for repairs at closing. Either option reduces the amount that your mortgage lender will receive. Submit counter offers to your mortgage company immediately.
- Loss amounts can change: Your lender may disburse payments for hazard insurance, property taxes or mortgage insurance premiums between the time the short sale offer is received, approved and closing occurs.
- Cooperate with your mortgage company's staff and follow their instructions to the letter. Missing documentation, even one piece of information, can doom your short sale approval.
Short sales are appropriate for homeowners who must leave their homes. Alternatives to foreclosure also include loan modifications, which involve changing mortgage rates and terms according to individual homeowners' circumstances. If you cannot contact your mortgage company, please contact a HUD approved housing counseling agency for assistance and advice.