With the collapse of the housing market, words like foreclosure and short sale have become much more commonplace. Not everyone understands what a short sale is or what it can mean for a homeowner who is underwater. A short sale is a when you sale your home for less than what you owe on it. It can be difficult to get a short sale approved since the lender will not be receiving as much money but it can be a great help to some homeowners.
One way that a short sale is a good thing is that everybody involved wins. If you are the homeowner and you sell your home for less than you owe, then you are able to get out from under a mortgage that you cannot pay. The person who buys your home will be able to buy it at a lower price than they would have otherwise. The lender does not want to be in the real estate business and does not want to have to deal with a property. By allowing you to do a short sale, the lender is able to get at least a little money. If the lender does not allow a short sale then the lender will have to take care of the property and run the risk of never getting any of the money owed, so it is easy to see how a short sale is a winning situation for everyone.
Another reason you might want to do a short sale is because short sales do less damage to your credit than a foreclosure does. Both foreclosures and short sales are negative marks on your credit report. The difference is that a foreclosure does a lot more damage to your credit and it stays on your report for seven to ten years. A short sale on the other hand will only remain on your credit report for around three years. Your score does not drop as low with a short sale as it will with a foreclosure because you do not have to wait to miss payments before you do a short sale. If you can prove you are having difficulties you can avoid the 80 or more points that will be deducted for late payments and that will always come with foreclosures.
A short sale is not for every homeowner and not all lenders will approve one. Short sales get especially tricky if there are other lenders involved in some way. A real estate agent should be able to help you negotiate with the lenders so that you can get a short sale approved if you need it. Keep in mind that it can take longer to sell your home with a short sale than going the traditional route because the lender has to approve the price you sell the selling price.