You may be one of many homeowners across the nation who has purchased a home within the last five years and now asking yourself this very question, “Is now the time to short sale my home?”. Lately every news report concerning the real estate market has indicated that home sales and prices are on the rise. Now that banks have slowed the foreclosure process, we are currently seeing single family inventory levels decrease across the nation. Coupled with the downsizing of the home building industry over the recent years it seems that the resale market is now gaining ground in most areas across the country.
What does this mean to the home owner who has struggled to keep up the mortgage payment on a home that may or may not ever regain its original value? With the lack of inventory and low mortgage rates still under 4%, there is a greater pool of home buyers eager to purchase a home of their own. Many of these buyers have suffered the high rate of increase in the rental market and now have an opportunity to save money monthly by owning versus renting. One of the key factors that is playing a very important part in the home buying decision of most buyers today are state and local down payment assistance programs available to first time and even second time home buyers.
With the selling season upon us and continuing to heat up as we move in to the summer months, now is the time to prepare your home for the market. Many listing agents across the country are stating that within hours of listing properties they are receiving multiple offers which are allowing the seller to receive a price more than the asking price. This is a good thing for the seller who wishes to short sale their home because the mortgage holder now has an opportunity to recoup a little more for the property than originally expected. Mortgage banks are now motivated to allow a short sale versus foreclosure proceedings and are offering programs such as “Cash for Keys” which enables the seller to receive a monetary stipend in an amount of $2,000 up to $30,000 in some cases.
How can I Short Sale my home?
The first step in determining if you qualify for a short sale is determining how much your home is worth in today’s market. This can be done by contacting a Realtor® for a free comparative market analysis or hiring a certified home appraiser. Once you have determined that you owe more on your home than it’s worth, you will need a professional negotiator to work directly with your mortgage lender to get a short sale approval which can now take as little as 60 days if you have a qualified purchaser who has placed a purchase contract on your property.
Important things to know before you short sale your home.
During the short sale negotiating of your home, be sure to confirm if the lender will hold you responsible for the deficiency of the mortgage especially if there are two lien holders of the property. It is possible that you could be liable for the portion of the mortgage debt which was not settled with your bank. Another very important thing to consider is that you could be liable to pay income taxes on any or all the forgiven mortgage deficiency. The IRS enacted the Mortgage Debt Relief Act of 2007 which generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This law was extended through 2013, so if you are thinking about short selling your home, do it before the end of the year.
After successfully short selling my home, what’s next for me?
Unfortunately you are now forced to rent for the next two years as mortgage lenders are now requiring a two-year waiting period before they will finance your next home purchase. It can be a difficult for some as they have been accustomed to home ownership. Taking the time to get your credit and finances in order may save you thousands of dollars when you are ready to buy your next home. You may be wondering, “How is this possible?”
During the housing explosion of 2003 to 2007 interest rates ranged from 6% to above 12% due to sub-prime lending causing monthly mortgage payments to be ridiculously high compared to today’s rates of 3.75% on FHA and VA loans. By the time you are ready to buy your next home, analyst are predicting that rates will still be lower than they were during the housing boom. Also home values in some areas are still 50% lower than 2005 values which mean your next home purchase may be a better bargain than the home you short sold.
Cory & Milly Kammerdiener are Real Estate Brokers and owners of Newhomeprograms.com LLC a national real estate company operating in Texas and Florida. Newhomeprograms.com has assisted home buyers and sellers since 2010 with an emphasis on credit restoration through their free Credit Enhancement Program. For a free consultation, please contact a local Newhomeprograms.com office nearest you.