Mortgage short sale is a term being thrown around a great deal in the recent turn of the economy. It refers to selling a house for less than someone owns on the loan. It is an agreement between the borrower and the lender that the house will sell for less than what is owed, but that the sale will suffice in paying off the loan. This is beneficial for both the bank who made the loan and the individual who is having a difficult time trying to pay the loan back.
How a mortgage short sale works
Someone owes 150,000 on a home and has a very difficult time making the payments. It appears the house will be foreclosed on because the payments can not be made. The house either needs to be sold quickly or the housing market is down so the price the house can be sold for is less than what is owed on the loan. A mortgage short sale, which is a deal is struck between the home owner and the bank where the house is sold for 130,000 and the rest of the loan is written off as a loss on the bank’s financial statements.
How a mortgage short sale benefits both parties
This is beneficial to the home owner because they have a way out of the loan without foreclosure. Although they cannot come up with the entire amount by selling the house, the bank will allow them to get out of the loan. Their mortgage payment no longer exists and perhaps they can move into a cheaper apartment and slowly build their credit. The home owner is also benefiting in terms of their credit score. The blow to their credit score will be far less severe from a short sale than a foreclosure.
The bank benefits because they buffer their losses. The bank only makes this deal if it appears the house will be foreclosed upon. That is an expensive and time consuming process in which the bank will most likely not recoup the entire cost of the house either. By agreeing to a short sale the sale of the home is on the home owner and the bank agrees to write off what is still owed as a loss. The entire loss of the loan could do a lot of damage to the financial stability of the business and the short sale loss will do damage but a lot less.
*Affects pricing. With the No Closing Cost
Option, borrowers finance the closing costs instead of paying for them at
closing. Borrowers who pay closing costs at closing may qualify for a lower
interest rate. Some upfront fees (ex. credit report and appraisal) may apply
and may be credited at closing.
*Refinancing or taking out a home equity loan or line of credit may increase
the total number of monthly payments and the total amount paid when compared to
your current situation.
Copyright MortgageLoansBadCredit.com, All Rights Reserved
