Short Sale Qualifications

how to qualify short sale Short Sale QualificationsHow to Qualify for a Short Sale

Before you eagerly climb aboard the short sale bandwagon, consider the following to determine whether you may qualify for a short sale. If you cannot answer yes to all four requirements, you may not qualify for a short sale.

The Seller Has Fallen on Hard Times.

The most common justification for a short sale is financial hardship. The seller must submit a letter of hardship that explains why the seller cannot pay the difference due upon sale, including why the seller has or will stop making the monthly payments.

Examples of hardship are:

    • Mortgage adjustment or loan payment increase
    • Unemployment and/or reduced income
    • Divorce
    • Medical emergency / sudden illness
    • Bankruptcy
    • Death of a spouse or family member
    • Excessive debt/Negative cash flow; where monthly expenses exceed monthly income
    • Evidence of pending loss and insolvency
    • Involuntary job relocation
    • Business failure (for the small business owner)
    • Inheritance (for heirs receiving ownership of property)
    • Military service
    • Significant tax or insurance increase
    • Incarceration

The Home’s Market Value Has Dropped

Hard comparable sales must substantiate that the home is worth less than the unpaid balance due the lender. This unpaid balance may include a prepayment penalty.

 The Mortgage is in or Near Default Status

It used to be that lenders would not consider a short sale if the payments were current, but that is no longer the case. Realizing that other factors contribute to a potential default, many lenders are eager to head off future problems at the pass.

The Seller Has No Assets

The lender will probably want to see a copy of the seller’s tax returns and / or a financial statement. If the lender discovers assets, the lender may not grant the short sale because the lender will feel that the seller has the ability to pay the shorted difference. Sellers with assets may still be granted a short sale but could be required to pay back the shortfall.

For example, if the seller has cash in a savings account, owns other real estate, stocks, bonds or even IRA accounts, the lender will most likely determine that the seller has assets. However, the lender might discount the amount the seller is required to pay back.

Many entities profit from short sales, but there is no seller short sale profit.

A few examples that do NOT constitute a hardship are:

  • Bad purchase decisions.
  • Blowing your paycheck on a home theater system with surround sound does not qualify as a hardship.
  • Unhappy with the neighbors. Even if every home on your block has turned into pot growing houses, that will not qualify as a hardship.
  • Buying another home. The lender will not care if you have decided the home is no longer suitable for you or your family.
  • Pregnancy. Increasing the size of your family or starting a family is not considered a hardship.
  • Moving into an apartment. If you decide to move out of your home, that is a lifestyle decision and not a very good reason to abandon your home.