All About Short Sales
May 15, 2014 by admin
Filed under Finance & Loans
Written by Phin Upham
Short sales are fairly common in the landscape of real estate today. A short sale property can be a great deal for a home buyer, but they require some patience to find just the right property. Investors love short sales because they can get the property at a slight discount. Here is how short sales work and why people use them.
Short Sales Defined
Short sales occur when the property sells for a price that is lower than what the home owner owes on the loan. A short sale is like a last chance for the buyer to avoid foreclosure. The lender needs to approve the sale, often selling the property at a loss.
Lender Approval
The reason for lender approval has to do with the loan amount. The lender is expected to sell the home at a substantial loss, which usually requires verification that the buyer can’t actually make the monthly payments on the property. Usually, this occurs when the owner has lost a job or suffered a pay cut. So the lender needs to determine if it makes financial sense to sell the property at a loss, as opposed to holding onto it in foreclosure.
When to Short Sale
When a home owner can no longer pay his mortgage, he has two choices. He can attempt to renegotiate the loan with adjusted payments, or he can attempt a short sale on the home. The borrower stands to take a hit to his credit report on a foreclosure, which incentivizes the short sale. Put another way, it’s often better for both the lender and the borrower to get rid of the property as quickly as possible. A short sale is a good method for doing this.
Phin Upham is an investor from NYC and SF. You may contact Phin on his Phin Upham
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