Being underwater in a mortgage is scary for any family. Defined as owing more on a home than what it is worth, an underwater mortgage can create stress that homeowners cannot alleviate. While many families choose foreclosure, a home short sale is often a more practical way to cut losses and regroup. While not perfect, a home short sale can save both you and your lender much trouble.
Home short sales are sales of properties that are underwater. The thinking is that, if you sell your home, you are able to pay off a substantial portion of your mortgage. With that out of the way, you drastically lower the principal you owe, and have a much smaller balance sheet. Occasionally, the lender may even forgive the remainder of the debt.
Going through a home short sale takes time. When you are delinquent on a mortgage, most states give lenders the power to determine how to dispose of your property. Short sale applications can thus take three to six months to process and approve. Once approved, it may take several more months to sell the property.
There are a few drawbacks to a home short sale. For one, short sales drag down property values in a neighborhood. This may not matter in a neighborhood where there are many foreclosures, but it could anger neighbors and even local governments in more stable neighborhoods. While this may not cost you, per se, it could damage your reputation.
A home short sale also damages your credit rating. This makes it hard going forward to buy a car, take out a loan, or even to get a job, let alone a house. Thus, home short sales will force you to live on a dramatically smaller budget for some time.
There are ways to receive help on short sale foreclosures. Your lender often provides free, confidential short sale help. A lawyer may, too. Whatever you decide, make sure you execute a short sale that is reasonable and win win for all parties.