If you are a home owner who is in danger of foreclosure or default because of a hardship, a short sale may be worth checking out. .
The advantages of a short sale:
1. It will be a smaller hit to your credit than what you'd experience with a foreclosure.
2. You may continue to live in your home to give you time to look for alternative housing.
3. Banks may be offering homeowners cash incentives to do a short sale (to help with sales and moving expenses).
Because your credit history won't take as long to recover with a short sale as it would with a foreclosure – an average of two years versus seven years – the short sale option is great for sellers who want to own a home again in the near future.
Some banks have launched programs to pre-qualify homeowners for short sales. Through their records and housing data, they identify borrowers on their books who are in negative-equity situations. In this case, some are reaching out to borrowers in an attempt to further streamline the short sale process.
This makes it much easier for you, the seller, to proceed with a short sale.
Short sales require different paperwork than a normal home sale. Your bank may have already qualified you for a short sale as mentioned above. In other cases, you and your agent will need to submit certain paperwork to your lender.
Your lender then decides whether or not to approve your request for a short sale.
Just what goes in a short sale package? Each lender is different:
HUD-1 or preliminary net sheet
Completed financial statement
Letter of authorization to let your agent speak to the bank
Letter that explains your financial hardship
Two years of tax returns
Two years of W-2s
Last two months of bank statements
Recent payroll stubs or other proof of income
Comparative market analysis or list of recent comparable sales
Keep in mind that banks' processes vary, and the above list is a general representation of what many will want to see.
In the past, the notoriously long waiting game for short sales deterred many buyers from attempting them.
But times have changed. Many banks have streamlined the process and removed the barriers that have hamstrung short sales in the past. Some are even pre-qualifying borrowers to get the ball rolling faster.
In addition, federal guidelines have helped shorten the wait for mortgages owned by Freddie Mac and Fannie Mae. These are great changes for buyers and sellers, because it means there are regulations in place to help shorten the process.