A short sale is another option aside from foreclosure. So What Are The Risks Of Short Selling? Although it is loaded with risks, there are still a lot of people who opt for this even if it can ruin an investor’s business and jeopardize a home owner’s plan. Short sale is a procedure that rescues a homeowner who can no longer afford to pay for their home loans. But there are things that you can do to avoid these pitfalls like being familiar with the things that can go wrong in a short sale procedure.

what are the risks of short selling

Since short sales can take time like two to six months, there will surely be delays in approval. In this case, be prepared to be rejected by lenders. Surely, time is the first enemy of both investors and homeowners. One major reason that lenders decline offers is because of the low offer. Thus, as a homeowner you have to make a counter offer or increase your offer price.

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Another major risk when doing a short sale is the damage on your credit score. Credit score damage in a quick purchase is not that serious compared to a foreclosure. Your FICO score can go down around 75-125 points and your record will just have a pre-foreclosure in redemption, a report which is not as bad as a foreclosure. Like foreclosures, short selling your property can hurt you in the future. Even if it allows you to save money in the short term, you will not be qualified for a new home loan for at least a year and a half which still depends on your credit record and payments.

Time lines are significant in a short sale proceeding. Accordingly, upon authorization from the lender banks will give a specific period within which sellers or homeowners should ready their financing and therefore close the deal.

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Short sales can’t be approved overnight. Again, it takes time before a short sale can be approved so it is important that sellers are informed with the time lines and necessary procedures involved in a short sale. Lenders need to know the seller’s financial difficulty that forced them to stop making payments. In this case, sellers’ or homeowners’ need to pass a statement of hardship or a hardship letters, along with their proof of income, bank statements, etc., that explains their financial difficulty.

It takes time before a short sale can be approved. In this case, it is important that sellers are educated with the time lines and necessary procedures involved in a short sale. Likewise, real estate agents know that home buyers may back out especially if they notice problems to the Real Estate property. Thus, it is important that Realtor give buyers time to inspect the property so they know where their money is going.

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