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In Over Your Head In House Payments? Consider A Short Sale

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If it has been months since you've been able to make your house payment, you're really struggling to make your house payment every month, or your circumstances are about to change in a way that makes your house payment unaffordable, you may be worried about the possibility of foreclosure. Foreclosure can wreak havoc on your credit score and make it very hard to buy or even rent in the future. So, it pays to consider an alternative: short selling your home. Here's a closer look at short selling and what it entails.

What is a short sale?

A short sale is when you sell your home for less than you still owe on the mortgage. You then use the money you earn from selling off the home to pay off the majority of your remaining mortgage balance. For example, if you owe $120,000 on a home, you could sell it for $110,000 and pay that $110,000 to the bank that held your mortgage. Then, you'd only owe the bank $10,000.

What are the benefits of a short sale?

It may sound silly at first to sell your home and then still owe some money on the mortgage. But owing the bank a few thousand dollars is a lot better, in most cases, than owing a full mortgage of hundred thousand or more that you have no way to pay. A short sale allows you to avoid the credit-damaging effects of going through foreclosure. As long as you can make the (usually low) payments to the bank to account for the amount you still owe on the mortgage after the sale, your credit score won't be negatively impacted -- which means you'll have an easier time buying again when you're more financially secure in a few years. When you owe more on your home than it's worth, a short sale may be your only real option if you need to get out of the home quickly.

How do you get started on the short sale process?

The most important thing is to work with a realtor who has experience with short sales and knows the process. Their knowledge will be invaluable as you encounter challenges along the way. Once you're connected with a good realtor, you'll set the sale price on your home and put it on the market. With the price set reasonably, you'll likely find buyers promptly. Your realtor will help you review offers to ensure the one you accept is reasonable. Once you've selected a buyer, you and your realtor will work with the buyer's agent and lender to finalize the sale.

If you're behind on your mortgage payments and owe more than your home is worth, a short sale will get you out of the bad situation in a way that's less harmful overall than allowing the bank to foreclose. Talk to a real estate agent in your area to learn more.