Although the housing market has been steadily improving, there are still some homeowners who find themselves under water on their mortgage. Dean Graziosi explains that this means that they currently owe more on their mortgage than their home is currently valued at. While this may not pose an immediate problem for homeowners who do not plan to move any time soon and can still afford their mortgage payment, it can still be somewhat frustrating. For homeowners in this situation, they have the option of waiting until the value of their home increases, which will bring them back above water.
For those who are having difficulty making their monthly mortgage payments or who may be forced to relocate for other reasons, they may face the option of selling their home at its current value. This may mean that they will be forced to take a loss and will not sell their home for a profit. Many of the homeowners in this situation may be able to qualify for a loan modification, but others are faced with the choice of letting their home go to foreclosure and negotiating with their lender for a short sale.
Dean Graziosi explains that the term short sale is used to refer to a situation when a homeowner asks their lender to accept repayment of their initial loan for less than the full amount. The sale price of the home is determined by the set price that the lender and seller have agreed to. Homeowners will likely be required to prove their financial hardship through documentation stating that their finances have changed which now makes the loan payment unaffordable. They can also provide proof that they are being forced to sell their home due to job relocation.
Many homeowners faced with this situation often choose a short sale over a foreclosure because they believe it will have less of a negative impact on their credit score. However, foreclosures and short sales can both lower your credit and will remain on your credit report for seven years. During that time you can work on improving your credit score by making sure that all of your bills are paid on time, reducing the amount of debt you have, and obtaining and regularly paying a secured cred card.
If you choose to go the route of a short sale, rather than having your lender state that the debt was settled, you should ask them if they could state that the debt was paid. When it is listed as settled, it shows that the less than the full amount owed was repaid. If you can get them to list it as paid your credit will not be as negatively impacted, but it is hard to get a lender to agree to change the terms. Regardless of the damage it can have on your credit score, short sales may your best option if you cannot stay in your home any longer.