Foreclosure isn’t your only option when you cannot keep living in your home and cannot continue making mortgage payments. Short sales allow you to dispose off the property to recover part of the money owed, before the lender decides on a foreclosure.
Struggling homeowners can take advantage of this process because it is shorter and has fewer implications for you. Kingston Family law attorneys can explain how it works, to make sure that you remain informed and are actively involved every step of the way.
How is a Short Sale Different From a Foreclosure?
Making decisions regarding your home debt becomes much easier when you understand everything about the various solutions. Foreclosures and short sales are common avenues for homeowners struggling with payments in Tennessee, but the two differ significantly.
With a short sale, the bank doesn’t charge any fees. They only need to prove that indeed your home is “underwater,” and they will do everything to get it off their books at no additional cost to you. On the other hand, foreclosure comes with fees from the bank and real estate consultants that facilitate the process. The financial situation worsens when one opts for a foreclosure.
Buying a New House
Foreclosures take a longer time, compared to short sales. This means that you will have to wait longer to buy a new house. Mortgage institutions may also place more restrictions on you if you had a full foreclosure on a previous home. They might allow applications after a short sale much sooner.
Foreclosures attract all manner of credit ramifications. On the contrary, short sales might not hurt your credit score as much. Only the pre-foreclosure status will show in your credit score, thus, having minimal effects on your ratings.
In case of lingering questions on what to do with your home debt situation, consider consulting with Tennessee real estate attorneys for proper guidance. While a short sale is the best way to prevent a foreclosure from hurting your credit records, it might not be ideal in all situations. Your Kingston real property law attorney can share several other favorable options if this option turns out unfavorable for your situation.
What is the Procedure for a Short Sale?
Once Tennessee real estate attorneys establish that a short sale is ideal for your situation, they can help you familiarize yourself with the process. Usually, this is how it goes:
- As the original debtor, you have agreed to sell the property at a lesser price than what is specified in the market appraisal.
- The lienholder has approved the short sale after showing that you cannot fulfill your obligations due to some financial hardship.
- There have been two appraisals, from a professional appraiser and another one from a broker’s price opinion.
- The price of the home purchase and the value of the short sale agreement will be determined by these evaluations.
- A buyer pays the short sale price, and the lien holder’s claim on the property is released. The new buyer can resale or get loans with the home as security.
Lenders might not approve a short sale unless all the documentations are availed to them. You need to have:
- Comparative market analysis for recent sales in the area
- Two months of bank statements
- Payroll stubs for the last 30 days
- Tax returns for the last two years
- A hardship letter
- Letter of authorization for an agent to speak to your bank
- A copy of the listing agreement between the broker and the homeowner, if applicable
- Preliminary Settlement Statement or HUD-1
- Executed contract
- Financial worksheet and supporting documents from seller/borrower
- Broker’s price opinion on the current value of the property
While you don’t have to worry about paying fees in a short sale, you need to pay attention to any potential tax liability, and the difference between the amount owed and the amount paid to the lender. A law firm that has done this for a while is in the best position to assist and advise you accordingly.
How Long Will I Wait to Buy a Home After a Short Sale?
The period you will have to wait before buying a home after a short sale depends on the type of loan you seek. Generally, though, government-backed loans are more forgiving compared to conventional home loans.
A number of non-prime programs can approve your mortgage a day after foreclosure, but on certain conditions. You might be required to pay back at a higher rate and make a substantial amount in down payment before accessing the funds. FHA mortgages have no waiting period for owners that:
- Had been making timely payments in the last 12 months before the sale
- Had not defaulted their mortgage at the time of the sale
If you don’t meet the above requirements, you might have to wait for three other years to qualify for FHA home loans. The clock begins ticking from the day FHA paid the claim on your FHA-insured loan or the date of the short sale if it was not insured. Remember, the period can be shortened if you show that the default resulted from extenuating circumstances, such as:
- Job loss involving a primary wage earner
- Serious illness or death relating to the primary wage earner
- Divorce, in some instances
Real estate attorneys in Kingston, TN, can provide all the information regarding life after a short sale, for you to make the most informed decisions.
Compassionate Family Law Attorneys Offering Financial Relief
Some financial hardships are unavoidable, and the impact can affect your ability to pay back what is owed in your home. When this happens, homeowners need to remember that they have options to get them out of that dark phase.
Davis Law Firm has skilled attorneys with a wealth of experience, knowledge, and skills to offer solutions relating to Tennessee’s real estate legal problems. Book a FREE case evaluation with us today.