When buyers make offers on properties that have been for a short sale, proceeds usually are less than the amount that the owners owe on the mortgage.
A short sale approval letter is made by a lender and issued to the seller if an offer for a short sale is approved. It is usually less than the amount the borrower will owe on the mortgage.
The lender issues this letter at the end of short sales, meant to demand the “short” payoff of the loan in exchange for releasing the lien on the property. Read on to know more about when these letters should be issued and how they contribute to actual short sales.
What Does Short Sale Approval Mean?
Short sales happen when properties get sold for lower than what is owed on the mortgage. The mortgage lender is the one who approves the “short” payoff.
A short sale approval only happens when a bank has determined that a homeowner qualifies for a short sale. Banks are the usual mortgage lender to most homeowners. So they will be the ones to approve the request to sell any property at reduced prices.
The lender will accept a short sale when the property proves to be worth less than the mortgage’s balance. These can also be approved if the homeowner can’t afford to make the monthly loan payment. Often, people don’t have enough money yet to pay back the full balance, but they need to move out immediately.
An approval from the lender is required because they will be the ones receiving a lesser amount on the property than what the borrower initially agreed to pay. These are often used in place of foreclosures. A short sale is a much more appealing option for both the house and the homeowner.
How Do You Get Approved for a Short Sale?
Short sales are also appealing because they allow lenders to avoid foreclosure. This is a legal method used by lenders to enforce mortgage loans. Foreclosure can lead to the homeowner completely losing their house. Short sales can benefit owners more as they can cancel the debt they have with the lender.
Here are the necessary steps to take in getting short sale letters approved:
1. Talk to your lenders.
In particular, talk to the department in charge of short sales. Usually, this is handled by the loss mitigation department. Smaller lenders have other departments which handle pre-foreclosure transactions.
2. Request the paperwork needed for short sales.
The lenders will mail or email the forms needed to begin the process.
3. Compile all required documents for the approval.
These include pay stubs, tax returns, bank statements, proof of unemployment. Proof of hardship like medical bills can also present extra data to support the approval request.
4. Double-check if all files and paperwork have been filled out and gathered.
The lender will sometimes require a hardship letter, which is like a letter of intent. It explains why you are requesting the short sale.
5. Find a real estate agent.
There are plenty of agents who are highly experienced in short sale situations. Real estate agent Nancy Braun is an example of the best in Charlotte, NC.
6. Submit the forms and requirements to the lender.
You will have to wait until a short sale approval letter is issued.
The approval letter will enclose the details of the short sale. This includes the amount of time you have to sell the home. There will also be a minimum price set for the house.
How Long Does Short Sale Approval Take?
A short sale approval takes a long process. It can be frustrating and time-consuming. Sometimes there can also be risks that come along with it.
The estimated time for a short sale to be fulfilled is at least 60 to 90 days. However, this number can vary depending on circumstances. Good real estate agents can help lessen the timeframe if possible.
Who Benefits from Short Sales?
Here are the people who benefit from short sales:
An approved short sale can prevent foreclosure. It has a less significant impact on credit score. Short sales also make it easier to transition into more affordable housing.
Buyers get to purchase a property at a lower price. Buying foreclosed properties is also a hassle. This is why short sale approved homes are preferred.
Foreclosure can also be a hassle to lenders. They would be the ones who have to sell the property, not the owner. Short sales offer more minor losses and an easier process.
The Real Estate Agent
Agents can earn profit from short sale deals. Usually, a percentage will be agreed upon between a buyer and their agent. This is also applicable to the homeowner and an agent.
What Are the Risks of Buying A Short Sale Home?
There are pros and cons to purchasing a short sale approved home. Just like any housing process, it takes time and effort. If you’re a buyer and want to think things through, here are the risks that come with short sale homes.
The process is lengthy.
Compared to traditional retail sales, the short sale process is longer. It can be hard to pin down closing dates until the lender agrees to the short sale. If buyers are working on a strict schedule, short sales might not be the best option.
There are lots of obstacles.
Sellers are usually in financial crunches when their house is on short sale. This means the house might not be in the best condition. In addition to that, the time limits might contradict each other. Sellers can also cancel deals, or the lender chooses another offer.
Lenders will rarely pay the extra fees.
As a buyer, you might need to have more money than the short sale price. The lender will rarely pay for any extras. These include inspections, repairs, and the like. It could mean more costs for the buyer.
Your offer might not be accepted.
Expect some competition with short sales. Since the houses are lower-priced, it is likely that others will be interested in them too. This means your offer might be rejected. That can be not very assuring, especially if the house fits your standards perfectly.
Is buying a short sale a good idea?
Buying a short sale is actually a good idea! If you’re a buyer and are hesitant, there’s no need to worry. With the right real estate agent, you’ll have little to no problems.
Short sale transactions are usually smoothly completed when you have a good agent with you. That’s one of the many things Nancy Braun can offer you.
Nancy Braun and her real estate company, Showcase Realty, have the best real estate agents in Charlotte, NC. Any transaction can be smooth and easy having a team of over 50 agents and staff.
Investing in a house on short sale will be a great idea. All it takes is a little bit of help.