I’ve Heard It Before, But What Is a Short Sale?

Finding oneself in the situation of being unable to keep mortgage payments current can be immensely stressful and embarrassing. However, anyone not privy to the real estate vernacular may not realize that there is an alternative to foreclosure proceedings or bankruptcy: short sales. A short sale occurs when real estate sells for an amount less than the current owner owes on the mortgage loan. When a property sells for less than its current value, the seller’s lender is accepting a discounted payoff to release the existing home mortgage.

This is very different from a foreclosure, in which a lender obtains a termination of the borrower’s equitable right of redemption by court order, or from a REO property, which is a bank owned property that has failed to sell at a foreclosure auction. Although a short sale is typically rather stressful in its own way, it is often a much more agreeable situation than bankruptcy or foreclosure. Nevertheless, as short sales result in losses for the lender, the process of selling a home short is not the easiest process in the world.

How to Go About Selling a Home Short

It is reasonable to expect a certain degree of difficulty in selling a home short, since the process will result in the lender or mortgage investor potentially losing tens of thousands of dollars; many times, it will make more sense from the lender’s viewpoint to foreclose. Also, not all sellers or all properties even qualify for short sales. Consequently, in order to get the lender to approve one on a property, the borrower must prove to the lender that he or she is no longer able to afford the mortgage. How is this done? The borrower must submit financial statements to the lender demonstrating his or her inability to keep up with the mortgage payments. This way, there is physical proof of financial hardship causing the borrower to resort to breaking free of his or her mortgage.

Unfortunately, aside from providing the lender with financial information, there really is no standardized short sale approval process. Approval criteria vary from lender to lender and, sometimes, within one institution. In any case, it is a good idea for any mortgager looking to sell his or her home short to consult a real estate agent with short sale experience, an accountant or other tax professional, and perhaps an attorney.

As the old saying goes, you have to spend money to make money, and that could not be truer when investing in real estate. You may have grand

ideas about how to spruce up a local property and then sell it for a mint, but if you dont have that initial capital, than you cant even start. What most

investors do is get a loan. A loan that is used for real estate investment purposes is a mortgage. As any homeowner knows, a mortgage can be

an albatross around the neck of any property owner, but if you are looking to flip properties fast, they are not such a big deal. You can get a

mortgage from most banks, credit unions and even from insurance companies. They can also be done privately through a wealthy investor who is

going to be investing in you, but these tend to be rare.

The average mortgage can be broken down into two categories: loans for residential spaces and loans for commercial spaces. If you are looking to buy a property that is going to be used for commercial purposes, like a store or a research centre, than you would need a commercial loan.

Most properties that fall into these categories tend to be multi-units, ranging from 4 or 5 to dozens. If you are looking to get a mortgage for a residential space and it needs to only be a one-unit space, than you would want a residential mortgage. Even if you are going to be making a commercial profit, say as a landlord, from a residential property, you would still need a residential mortgage. The way the loans work, you file for one and when you receive it, you are given all the money you requested at once and then you pay the mortgage back in bits and pieces. If you are going to be investing in property, you will need a lot of money, not only from the cost of the property but things like closing costs and points can really add up.

The bank or credit union that you are applying for the mortgage from will take three main factors into consideration when they look at your
application. The first is your income. The second is your credit score and the third is savings. The mortgage can be broken down into five
essential parts that any investor needs to look at closely before signing any legal papers. The principal of the loan, meaning how much the loan if for, the rate of interest, meaning the fee the bank is requesting to borrow the money, the terms of the agreement, meaning how and when the bank is going to want their money back, the payment schedule, and the final value, which includes any extra fees that are not otherwise stated.

One important aspect of mortgages that needs to be understood is that the longer the bank gives you to pay back the loan, the higher the interest rate will be, meaning, the more money you have to pay the bank to borrow the money. Try to get the shortest period possible on a loan to save yourself the most money in the long run.