If you are struggling to make your mortgage payments, you may have considered filing for foreclosure. There are, however, several options that may leave your credit in better health. A short sale allows you to sale your home for an amount less than what you owe on your mortgage. This means that the lender will be short the amount between what was owed on the mortgage and the amount the home sold for. Although the lender is losing money on the home, a short sale may be a better option when compared to a foreclosure. In a foreclosure, the lender would lose the entire balance of the mortgage; however, a short sale would allow the lender to keep a portion of the money owed.
Not everyone may qualify for a short sale. There are certain requirements of extenuating circumstances that would allow a lender to consider going this route. Your home could be in default or nearing default status. If you simply cannot make your mortgage payments, the lender may not wait until you are three mortgage payments behind to take action. If you have fallen on an unexpected hardship, such as a job loss, unforeseen medical illness, bankruptcy, divorce or a death in the family, you may be able to file for a short sale. In this situation, the homeowner would write a letter of hardship, which the lender would review and make a final decision based on the situation.
It is important to keep in mind that short sales do affect your credit rating, but are an option to help you out of a bad financial situation.
This information is intended to educate and should not be taken as legal advice.