by Alana Day
(Denver, Colorado, USA)
When you cannot afford your house payments but owe more money on your home than it is worth, a “short sale” may be the best option available to save having a foreclosure on your credit!.
A short sale is a sale of your home where your lender agrees to accept less than the full balance of your loan as payment in full. Of course there are other options. You can definitely keep the home and rent it out while you wait for real estate values to return to past levels, but do you really want to be a landlord. If you are moving out of town this can be a nightmare. In addition, you have to be prepared to continue making repairs to a home that someone else is living in and tearing up when you already can’t afford to make the payments. Getting the bank to agree to take a lower payoff so that you can sell your home now is a much better alternative for many people.
Unfortunately, when your home is financed with an Federal Housing Administration(FHA) insured mortgage, this isn’t as simple as it is for other types of loans. There are two primary problems. The first is that because the lender is insured against losses by the Federal HomeAdministration/HUD if they foreclose, they don’t have much motivation on the surface of things to agree to take less than the total amount owed.
The second problem is that the steps lenders are required to take are all controlled by the FHA. They can’t just make the decision on their own without going through all the steps required by FHA. Here are the steps you need to take in order to qualify for an FHA short sale.
The first thing you need to be aware of is that in order to qualify for a short sale your property must usually still be owner occupied. You can’t short sale an investment property with an FHA loan. This can be waived however in certain situations such as divorce, death, unemployment or job transfer.
Second, when you have an FHA loan, before you can complete a short sale on your home you must first attempt to go through the loanmodification process. If you really want to short sale your home, don’t worry about this. Most loan modifications are not approved.
Once your loan modification has been turned down, you must get prequalified for a short sale. You must provide documentation of your hardship situation proving your inability to continue to make the house payments. In addition, you must be at least 30 days past due with your mortgage payment.
Once your short sale is approved, you must list the property with a licensed real estate broker. This broker cannot be a relative. The home must remain on the market at least 4 months. Sometimes, depending on other factors such as average market times in your area, you will have to leave it on the market 6 months. Real estate commissions are limited to 6 percent, but this is almost always in line with average fees in most areas.
Housing and Urban Development(HUD) will pay some of the fees involved such as real estate commissions and some of the buyer’s closing costs on their new mortgage. In addition, HUD will pay the lender a bonus for quick processing and will pay toward the clearance of any second lien.
An FHA short sale can be a complicated process, but it is possible to accomplish a short sale as long as you make sure to follow all the necessary steps before putting the home on the market.