Short Selling? Ask Yourself Four Questions Before You Do to See If You’re a Candidate.
Deciding to try a short sale is an important decision. Underwater homeowners often consider this alternative to foreclosure. It can be the answer to a tough financial situation, but it’s not for everyone. Here are four important questions to ask before making the decision.
What is your credit score? A short sale will drop your credit score at least 100 points or more, making the possibility of getting a loan right after unlikely. While credit repair is possible, it takes time, so be sure to learn your credit score before deciding to do a short sale. If you have a good one, consider other alternatives and try to preserve it. Many short sellers have had late mortgage payments in the past year, which makes it likely your credit score is already damaged. If that’s the case, then the additional impact of a short sale might not be that significant.
Do you have a financial hardship? Generally a bank will only consider a short sale if there is a financial hardship. It’s not necessary to be in arrears on the mortgage, but it is required that the borrower show financial hardship. Loss of job, depleted savings, and not being able to afford monthly living expenses and the mortgage are good examples.
How under water are you? This is an important question to ask. Consult a short sale attorney (like this one) to calculate exactly what a sale is likely to yield, and what other expenses need to be paid. Some homeowners could “get out from under” by putting cash into the deal, rather than short selling, which may be a better option if you’re trying to protect a good credit score.
Do you have a lot of other debt? Remember a short sale will only deal with the underwater home, not other debt. So if the goal is a fresh start, and the remaining debt even after the short sale is insurmountable, then maybe bankruptcy is a better option. Consult with an attorney on this alternative.