A short sale occurs when a property sells for less than the balance owned on the property’s loan. A short sale generally occurs when the borrower/homeowner cannot afford the mortgage on the property. It is important to note that a short sale is not the same thing as a foreclosure. In the case of a short sale, the lender has decided to sell the property at a moderate loss in order to avoid a substantial loss that might be incurred due to a foreclosure. A property can be short sold without missing any payments, which protects your credit. This is recommended! If you can afford to continue making your payments, doing so will help your credit's resilency and bounce-back time.
A short sale typically occurs when homeowners are delinquent on their mortgage payments. The homeowners are often upside-down on their homes as well. Meaning the homeowner owes more on their mortgage than the home is worth. Banks may approve a short sale prior to missed payments but usually use the delinquency as proof the homeowner can no longer afford the property due to financial hardship.
But how does a short sale affect the seller’s credit score? Past clients have reported that their Beacon score dipped 15 to 30 points but started increasing within months. Remember, the homeowner’s credit initially starts to decrease when he/she misses their first payment. But while the delinquent payments do negatively impact credit scores, it is much less than the impact of a foreclosure.
Because of the negotiations required with banks and lenders, the process can be complicated. Emotions are often running high. Thus it is in the seller’s best interest to seek representation from an unbiased, knowledgeable and experienced third-party real estate team. Kara Homes & Associates can guide you through the short sale process and help you make the best decision for you and your family.