A short sale happens when the homeowner sells the property at a loss and requests that the lender forgives the remainder of the loan balance. For example, let’s say the house is worth $300,000 and it will cost the owner $21,000 in expenses to sell the property, however, the current market value of the property is only $280,000. The homeowner can do a short sale and asks the lender to forgive the $41,000 that he would otherwise have to bring to the closing to sell the house. If the lender agrees, the homeowner can sell the house at a loss and walk away without owing money to the lender; however, the homeowner could owe income tax on the amount forgiven.
Frequently Asked Questions
What is the difference between a Standard Sale and a Short Sale?
There are several key differences between a standard sale and a short sale, e.g.:
- The homeowner is more likely to accept the first offer to get the house under contract as soon as possible.
- The home is usually sold as-is, i.e., you can do a home inspection, but the homeowner will not do any repair.
- The lender will usually take between 2-3 months to approve the short sale. In the meantime, you cannot lock your interest rate.
- The lender may counter the contract that was agreed between the homeowner and the Buyer. For example, the lender could ask for a higher price, lower seller’s subsidy, etc. The Buyer can choose to counter the offer, accept, or reject the offer.
How long does a Short Sale usually take?
Typically, 2-3 months. It can be longer if there is more than one lender involved, or if the short sale negotiator is inexperienced.
Is a Short Sale more complicated?
Yes, it is more complicated for both the Buyer and the homeowner because there are more people and paperwork involved. There is a greater chance of failure if the lender(s) cannot or do not agree to the short sale.
Also, the deal can fail if the homeowner cannot satisfy repairs required by appraisal lender’s required repairs, HOA violations, or wood-destroying insect inspection.
Does a Short Sale hurt my credit score?
A short sale is considered a serious credit issue and it will impact the Seller’s ability to get a home loan or refinance a home loan for about 3-4 years.
On the other hand, the short sale doesn’t have any credit impact on the Buyer.
More Articles You Might Like
Pinyo is a full-service Realtor with Berkshire Hathaway HomeServices PenFed Realty and an insurance agent with McEvoy Insurance & Financial Services. He specializes in representing clients in the purchase and sale of residential and investment properties throughout Virginia and Maryland areas around DC.