Yes, you can apply for a mortgage and buy a more affordable home after a short sale. A short sale gives you the chance to buy a more affordable home and get a fresh start in life approximately 2 years after it’s completed. Homeowners struggling with mortgage payments often decide that a short sale is a better alternative than remaining in their home and risking foreclosure. In a short sale, the bank agrees to take less than is owed on the mortgage when the house is sold.
“After reviewing my clients’ situation, I usually find that it is in their best interest to go ahead with a short sale and start fresh in a new home,” said Eva Boccio of Realty Warehouse.
“With a short sale, the mortgage balance is forgiven and most often so are the past taxes, fees, liens and judgments attached to the property. Some clients are eligible for relocation expenses and can walk away with money as well.”
Short Sale Favorable than Foreclosure
According to Eva Boccio, a short sale is much more favorable than a foreclosure in terms of the effect on one’s credit and their ability to finance a home in the future. A homeowner can apply for a new mortgage approximately 2 years after selling in a short sale. If the bank forecloses, they would have to wait almost double that time to apply for a mortgage because their debt would not be cleared.
Short Sale and Credit Score
“If the house forecloses and sells at auction to a third party or is taken over by the bank, the seller’s mortgage is not satisfied and the bank has the right to pursue the mortgagor for the difference. This has a devastating effect on people’s credit,” she stated. “In a short sale, your credit score does not drop as much. The mortgage is forgiven, and taxes or other liens are most often satisfied by the buyer or the bank.”
Guiding through the Short Sale Process
Eva Boccio guides her clients through the short sale process. “After providing the documentation, the homeowner lists the property with a realtor who puts it on the Multiple Listing Service,” she said. “When an offer comes in, it is sent to the bank servicing company. The bank assesses the value of the home and reviews the sales contract. At this point, negotiations take place.” When there is an agreed upon price for the sale of the property, the bank provides a short sale approval.
Eva says the owner is in a much better position after a short sale than a foreclosure. “What people don’t always realize is that from the minute they are late with their mortgage payments, fees and interest start adding up,” she said. “If the owners don’t work something out with the bank in 90 days it’s almost impossible to catch up, especially if the mortgage has been in place for less than 15 years. At that point, it’s just not worth it to overpay for the property that is no longer worth what is owed.”
Ten frequently asked questions about short sales
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This blog is for informational purposes only, subject to change.