Short Sale Qualifications

by Beverly Bird, Demand Media

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Shorts sales have become a popular option for homeowners who are either in financial distress, or who just want to sell the property so they can move on. The latter won’t qualify you for permission for a short sale from your lender, however. The requirements for qualifying can vary somewhat from mortgage company to mortgage company, but they generally fall into three categories — and they don’t include just wanting to sell in a bad economy.

How Short Sales Work

If you can’t keep up with your mortgage payments, you can approach your lender and ask to sell your property for less than the mortgage you owe. Your lender will want proof that the housing market in your area is such that a buyer would not be willing to pay enough for your home to cover your mortgage balance. This might require an appraisal to establish the property’s worth in the current market, or a comparative market analysis performed by a real estate agent. If your lender agrees that you can’t possibly get enough for your property to pay off your debt, it will let you sell your home for less, often forgiving the difference so you no longer owe it.

Hardship

You’ll have to convince your lender that you can’t hang on until the market rebounds, which would allow you to sell your house at an appreciated value. The first prong of qualifying involves giving your lender a viable reason why you can no longer make your mortgage payments. Some hardship must have befallen you since you took out the loan – it typically can’t be something that you’ve been struggling with since before you closed on the property. For example, you might have fallen sick so you’re unable to work. Your spouse might have left you or died, leaving you with the house, the mortgage, but only half the household income she once helped contribute to. You might have a mountain of unexpected medical bills, or maybe you lost your job. There are no hard and fast rules as to what constitutes a hardship, but what occurred must typically be pretty calamitous.

Income

You must also prove to your lender that the hardship has affected your income to such an extent that you can’t pay all your bills. What you bring in each month must be less than what must go out to cover all your expenses. This usually involves completing a detailed statement, itemizing all your sources of income and everything you must pay to stay afloat, including your mortgage, utilities, car payments, auto insurance, and even credit card bills. All these expenses must exceed your available monthly income.

Insolvency

You must also convince your lender that you’re insolvent. Insolvency doesn’t mean that you earn less each month than you need to survive. Technically, it means that the overall value of everything you own is less than the total of all you owe. Your lender will want to know that you have no hidden cache of money available to you, or assets that you could sell to pay down your mortgage. If you’re insolvent, have suffered a hardship, and you no longer earn enough to pay all your bills, your lender might allow you to sell your home for less than what you owe.

 

 

 

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