Back in 2007, many Americans invested in different real estate with anticipation to sell their properties for an increased profit after a few months. Those who could not afford signed the mortgage deals. Contrary to what was expected, the real estate market dipped in recession and experienced a drastic decrease in the property values. As a result, 2.8 million homeowners suffered foreclosures in 2009.
When the mortgage crisis strikes you, the increasing mortgage defaults and the missed monthly payments will certainly make you worried. You will be seeking out the ways to avoid the foreclosure; however, there is only one for that, a ‘short sale.’
What is a Short Sale?
You will wonder what a short sale is. Well, it is a process in which a seller sells the property for less than the amount they owe on a mortgage loan. Moreover, the lender in a short sale agrees to accept less than the remaining mortgage balance that a homeowner is subjected to pay.
In some cases, the lender waives off the difference. But in a situation when the lender does not agree upon waiving off the difference, the homeowner will have to make the arrangements to settle the remaining amount of the debt.
While a short sale usually costs the lender less as compared to foreclosure, it can be a better way for a mortgage lender to minimize its losses. Furthermore, a short sale can be a great option for the homeowners that are delved into catastrophe situation of mortgages.
Not to mention, a short sale may not cause any harm to your credit history as much a foreclosure does. Also, the homeowners will be able to qualify for the next mortgage, unlike foreclosure. However, you will be surprised to know that foreclosures are less common than short sales. Even in the recession period of 2011, the rates of foreclosures rose up to 3.6%, and now it has dropped by 2.6%.
What benefits can you get From Short Sales?
A short sale will enable you to keep residing in your house until the sale completes, whereas the owner has to vacate the house in the case of a foreclosure. Although a seller pays the closing costs, you will not have to pay those when the sale is short. Instead, the bank or lender will pay all the costs.
If you have been pooling into financial losses and dealing with the mortgage crisis, a short sale may help you escape from this tough situation. Unlike foreclosure, a short sale causes less damage to your credit score and credit history. As a result, you will be able to apply for your next mortgage, without any hassle.
The Bottom Line
Although the short sale is not still a common practice, it has surged into popularity due to the recent housing downturn. Generally, a short sale is reserved for extremely severe cases in which the lender or bank decides to take the early loss instead of bearing costly foreclosures. However, if you are experiencing an underwater mortgage, a short sale can be the best way to deal with the situation.