What is a short sale?

A short sale is simply a real estate transaction where the seller owes more for their home than they can sell it for. Why would a mortgage company allow a short sale to occur? The reason the mortgage company(ies) will often allow a short sale is that they know the loan will go to foreclosure if they do not approve the short sale and they will lose more money and the process will take more time and cost them more money than if they approve the short sale. It is important to deal with a seasoned real estate professional when buying or selling a short sale. It is also a good idea to involve a short sale specialist in the transaction. The bottom line is that the transaction will not close unless the loan servicer(s) approve the short sale. It takes a great deal of time and experience to negotiate the short sale approval with the servicing lender(s) and it is even more complicated if there is a first and second mortgage on the property. If you are the buyer, it is important to work with a mortgage company who is experienced with short sales. Once the short sale is approved by the servicing lender(s) they generally give you a very short period of time to close the loan. It is important to work with a lender who can get you completely pre-approved and then close and fund the loan in just a few weeks once the short sale is approved by the servicing lender. You should also talk to a CPA prior to considering selling your home as a short sale. If the loan servicer(s) releases the deficiency, then there may be a taxable event. They will usually issue a 1099 for the amount of the deficiency released which becomes taxable income to you. You may be able to offset this taxable event if the property is owner occupied, but again you should talk to your CPA about this. It is also important to know that it can often take 8 weeks to submit a package to the servicing lender(s) for approval. A short sale can be a good option for someone who can no longer afford their house payment, is upside down, and needs to sell. No one can tell you exactly how much your credit scores will go down if you sell your home as a short sale,but it is generally agreed that a short sale will have less long term affect on your credit score and ability to purchase another home in the future than a foreclosure. If you are a buyer, a short sale can also be a good opportunity to purchase a home below current market pricing. You just have to be patient. Whether you are on the buying or selling end of a short sale, it is very important to surround yourself with the right professionals when considering this kind of real estate transaction.

Loan limit increased to 125% for HARP

The Obama Administration just announced that it is increasing the loan to value limit on the Fannie Mae/Freddie Mac refinance program to 125%. That means that you can now refinance with a loan amount up to 125% of the current market value of your home. If your current loan does not have mortgage insurance, then your new loan would not have mortgage insurance either. This is good news for many homeowners. The prior limit was 105%, so this will open up this program to many homeowners who previously did not qualify. See the related article at CNN money at the attached link http://money.cnn.com/2009/07/01/news/economy/Obama_refi_program/index.htm?postversion=2009070114