Should You Consider A Short Sale? 8 Short-Sale Myths Vs Facts

by Carrie Hazen

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Should You Consider A Short Sale?
If all retention options have been exhausted or are not possible, a short sale is a good alternative to foreclosure that allows distressed homeowners to gracefully leave their home and transition to more affordable housing. It’s also typically less damaging to a borrower’s credit report than foreclosure, and usually reduces the amount of time a borrower needs to wait to get a new mortgage down the road.

A short sale may make sense if you:

Do not qualify for any options to keep your home, including a loan modification, forbearance, or reinstatement.
Need to move in order to keep or obtain employment.
Don’t think you could sell your home at a price that would cover your outstanding mortgage amount.

8 Short-Sale Myths Vs Facts

Myth 1: “A short sale is not an option for me because I’m current on my mortgage payments.”

Freddie Mac Fact: Even if home owners are current on their mortgage payments, they may still qualify for a short sale. They must meet general eligibility requirements, the home must be their primary residence, and their debt-to-income ratio must be more than 55 percent.

Myth 2: “I will be responsible for the entire amount owed on the mortgage.”

Freddie Mac Fact: Home owners won’t necessarily be responsible for the entire amount owed on the mortgage under the Freddie Mac Standard Short Sale program, Mooney notes. Borrowers who complete a short sale in good faith and are in compliance with all laws and Freddie Mac policies will not be pursued by Freddie Mac for the entire amount owed under the mortgage. However, home owners who have the financial means may be asked to make a one-time payment or sign a new promissory note for a portion of the unpaid balance after the short sale closes, Mooney says.

Myth 3: “I can’t get a short sale on an investment property or second home.”

Freddie Mac Fact: Mooney says that investment properties and second homes are eligible for a Freddie Mac short sale. However, borrowers must meet eligibility requirements.

Myth 4: “A short sale will affect my eligibility for a new mortgage.”

Freddie Mac Fact: Home owners who go through a short sale may be eligible for a new mortgage sooner if the short sale was caused from financial difficulties due to income loss, medical emergencies, or other extenuating circumstances beyond their control. Former home owners in those circumstances may be eligible for a new Freddie Mac mortgage once they’ve established acceptable credit for at least 24 months after completing the short sale. Former home owners who underwent a short sale due to “personal financial mismanagement,” however, will need to re-establish acceptable credit for at least 48 months to become eligible for a mortgage backed by Freddie Mac. “You should start speaking to a lender about a new mortgage two years after your short sale closed,” Mooney notes.

Myth 5: I won’t qualify because my servicer has strict guidelines on short sales.

Freddie Mac Fact: Every borrower is eligible to be considered for a Freddie Mac short sale providing they meet the eligibility requirements. Freddie Mac increased the authority of its servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage payments. In addition, servicers now have the independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.

Myth 6: Freddie Mac sales can take several months to complete.

Freddie Mac Fact: With Freddie Mac’s Standard Short Sale, the time lines are significantly shorter. Servicers have 30 days to make and communicate a decision to you once they receive your completed application. Once approved, you can expect to close on your short sale within 60 days – working with an experienced real estate agent can help expedite the process.

Myth 7: I have a second mortgage on my home, so a short sale is not an option.

Freddie Mac Fact: If you meet the other eligibility requirements, you may be able to obtain a Freddie Mac short sale even though you have a second mortgage. For example, under our short sale program, we are offering up to $6,000 to subordinate lien holders – who are like second mortgage companies – in exchange for releasing the subordinate lien, extinguishing the underlying indebtedness and waiving the right to pursue deficiency.

Myth 8: A short sale will ruin my credit score.

Freddie Mac Fact: While only the credit reporting agencies that calculate your credit score will know for sure, it’s possible that a short sale might be better for your score than a foreclosure. Even if it isn’t, a short sale gives you time to find a more affordable place to live and exit gracefully from your obligation.

To get more information on eligibility requirements call Carrie Hazen at 954-649-6974.

Source: “Short Sales: Dispelling the Myths,” Freddie Mac (Jan. 13, 2014)

 

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