Tough times come. And in such moments, adjusting will be inevitable. Usually, people will readily end up finding it hard to keep paying their mortgages at such times. In the wake of uncertainty, short selling property becomes almost a norm.
Assuming you start seeing an increase in the homes for sale in Houston TX, and suddenly so. You are likely to wonder what changes have taken place. But perhaps such would be the time to reflect on the status of the economy. Usually, the tighter it is, the more houses for sale in Texas will be. A slight improvement in the economy could result in lesser houses being sold.
But as mentioned earlier, sometimes tough times will be inevitable. In this regard, we explore some of the critical elements that affect or could spur short selling. Read with us!
What is a short sale
A short sale comes about when a distressed homeowner decides to sell their home at a rate lower than what they owe in a mortgage. In most cases, the buyer is a third party, preferably not a bank. The homeowner’s lender receives the whole amount raised in this transaction.
Also, you will find that the lender could forgive the difference between what they raised and what the homeowner owes. This lender could choose to get a deficiency judgment too. However, we have various states that make it mandatory for the difference to be forgiven.
The basics and process of a short sale
Usually, this process will only start once the lender signs off on the need to execute the short sale. As such, the lender is likely to demand to know the idea behind this home short sale. They then determine whether it makes sense before allowing it.
For a short sale to be valid, two things need to remain positive. The homeowner should be behind mortgage payments and hardly able to catch up. The real estate in Texas industry will also need to be so poor that the value of the house is less than the remaining balance of the mortgage.
This process consumes lots of time and could be relatively paperwork-intensive. Did you know that it could take even up to a year? The good news is that it will hardly affect your credit scores over time.
Usually, the seller, through their agents, lists the house and collects a hardship package from the lender. This package includes a letter explaining reasons for the short sale, loan information, and bank statements.
The agent will be responsible for submitting the buyer’s proposal or offer. It is from here that the negotiation process begins. While it could be lengthy, it will help in highlighting all the invaluable concerns.
More than often, lenders will accept the offer within four to six months. Sometimes, you could wait for this long only to get an exorbitant counter-offer. If this value seems too high, the buyer will be free to explore other alternatives.
It would be best for you to remember a few things about this kind of transaction. They include the following:
• A short sale is not akin to foreclosures. A homeowner is actively involved in the former, unlike what happens with foreclosures.
• It will be essential for you to avoid filing for bankruptcy before carrying out a short sale. Otherwise, you could end up compromising the transaction in the long run.
• A short sale tends to be advantageous to the lender. That is because they will hardly need to worry about liabilities like property taxes and the payment to evict any tenants.
• The lender could sue you for the balance. For this reason, ensure that you agree with the bank before initiating the process.
Defaulting payment is not necessarily the key to a short sale. Usually, you will need to meet specific criteria before you start the process. Here are a few variables you will need to fulfill.
• The loan is in default
First, you must have defaulted the loan. Here, the seller will need to prove that they are way back in payment such that they cannot catch up. Usually, you could consider getting a short sale at least six months after getting a notice of default. The timeframe might vary with the state you live in and the lender’s administration factors.
• A decline in property value
As mentioned earlier, the value of the property must have fallen so much that it is below the value of the mortgage’s balance. For instance, if a seller took a mortgage of 250000 USD and the current value of the house in Houston is about $210000, it would be fair to consider this short sale.
• Financial hardship
Usually, you will need to showcase that you are in a financial crisis. This way, you will prove that you are unable to meet your obligations, whether bills or mortgage installments. Such will be the time for you to submit every document that details your financial standing. Documents like income tax returns, W2 forms, and pay stubs will come in handy.
Benefits of a short sale to the seller
• This move will often allow you to enjoy a much better credit score. Most credit bureaus will give you a better score compared to what you get after a foreclosure. This move allows you to buy another house over time without too much strain.
• You will also need not to worry too much about home sale fees. Traditionally, you will need to part with about 6% of the value of your house. In this case, it will be upon the bank to pay the real estate agent.
• This process could help in cushioning you against emotional upheaval. By avoiding the worst-case scenario, you will save face and maintain your self-esteem. That would be a vital aspect to keep you going in life.
Despite all these merits, you will not have access to the cash-out. Also, the process tends to be dependent on the approval of the lender. This aspect could be inconvenient for most people.
The need for a short sale could arise from time to time. But do you understand the process and repercussions? Now you do. With all these aspects in mind, you will confidently make the right decision.