Or, perhaps you have been trying to sell your home for over a year now with no luck. Unless your home is located next door to a bubbling tar pit, the reason your home probably hasn't sold is because it is overpriced. You too may be a candidate for a short sale.
Before you decide to take the short sale route, there are a few alternatives to consider.
1. Have you considered a loan modification with your current lender? If you are paying a high interest rate, i.e. 6%+, a lower rate could give you considerable relief. Remember though, your modified monthly payment should not exceed 30% of your gross monthly income. If you have experienced a considerable drop in income, and your new payment exceeds the 30% threshold, your loan modification probably won't be approved. (b/t/w FHA and VA are the easiest to modify!) Run the numbers before you submit your modification request. These can take up to 90 days.
2. Have you considered renting the house out until the market improves? This is a great alternative for those who have moved out of town/state and just can't afford the expense of two house payments anymore. The rent should cover the principal and interest on your loan as well as property taxes, insurance and any home owners association fees.
3. What about taking in a room mate (or two?). Maybe your income is such that you can't modify and it would cost just as much to live in a comparable neighborhood as a renter. So, stay in your home and rent out a room. This way, you continue to have "home owner" status with the FICO (credit score) people, and don't have the inconvenience and expense of moving. Once your situation improves, you can get rid of the tenant and resume your life.
4. Can't modify, not landlord material and don't want a room mate. Then a short sale may be your last alternative. So here's the short sale scoop:
To be eligible for a short sale, several factors are considered:
1. In 2009, loans were required to be at least 61 days delinquent. Not so in 2011. If you have a change in your income and can't make your payments, list your house and start the selling process before you are delinquent. This will prevent the negative impact on your credit score.
2. Lenders prefer the property to be owner occupied, but not a requirement. Another reason to list early!
3. Your income should be such that you can no longer afford to make the payment.
4. You must be willing to provide the lender with two years tax returns, two months bank statements, two months pay stubs. These should be provided for all parties who originally signed the note. If you have gotten married since signing the note, the lender may also require your spouse's income information as well.
5. You must provide the lender with a hardship letter stating why you are requesting the short sale i.e.: poor health, salary cut, loss of job, etc.
6. You must provide the lender with a personal financial statement showing all monthly expenses.
Once you have provided the lender with this information, they will consider your request for a short sale. It's not a slam dunk. If you decide to take this path, you must know that the paperwork is endless and the lender will respond to you when they are ready. Patience is a must. In the meantime, it's best not to allow your payments to go beyond 90 days late. Loans within the 90 day limit are getting preferential treatment.
Another factor the lender will consider is how many liens are on the property, i.e.: tax lien, home owners association lien, 2nd mortgage. If you have more than two liens, you must have a plan to satisfy ALL of the lien holders. Some lenders will NOT pay Homeowners Association fees as a part of the short sale settlement.
And finally, before making any final decision, consult a good tax advisor. You may not be protected from income tax liability by the Mortgage Debt Relief Act.
For a complimentary, one hour consulation, give me a call, Karen Pannell 270-903-2167.
Text or Phone: 270-903-2167
Owensboro, Kentucky 42301