One of the valid alternatives to foreclosure — after you’ve done what you can to avoid it — is engaging in the short sale.

How does a short sale work?

Basically, short sales work when mortgage lenders allow borrowers to accept less on the house than they owe on the mortgage. Lenders then forgive the difference. Say you owe $150,000 on your home. You are in danger of foreclosure. Someone is willing to give you $143,000 for the home. The mortgage lender would approve the sale and forgive the $7,000 difference.

This works on a couple of levels: You avoid the credit issues that comes with a foreclosure, and the bank usually gets more money. Indeed, CNN Money describes the advantage of a short sale to mortgage lenders:

Ideally in a short sale, everyone wins. Borrowers avoid the ugly foreclosure process that destroys their credit, while lenders recoup more of their costs than they would by spending the time and money it takes to kick an owner out and resell the property.

Lenders typically lose about 19% of a mortgage’s value in a short sale, according to Clayton Holdings, a Conn.-based, provider of loan analytics, while they lose an average of 40% on loans that go into foreclosure.

Why aren’t more mortgage lenders doing short sales?

The puzzling thing is that mortgage lenders aren’t approving these short sales. This is a quick solution to the foreclosure problem, and it allows them to more easily recoup more of their losses. But mortgage lenders aren’t interested.

Which doesn’t make sense.

By many accounts, home price recovery will wait until 2010, so getting a price that covers many mortgage loans just isn’t feasible right now. And, with mortgage applications falling, one would think that mortgage lenders would want to keep some cash flow moving through. If a home is in danger of foreclosure, refusing to qualify a short sale is a silly thing to do.

Tags: foreclosure, short sale, home mortgage loan, mortgage loan blog,
mortgage loans, mortgage lenders, mortgage short sales

One of the valid alternatives to foreclosure — after you’ve done what you can to avoid it — is engaging in the short sale.

How does a short sale work?

Basically, short sales work when mortgage lenders allow borrowers to accept less on the house than they owe on the mortgage. Lenders then forgive the difference. Say you owe $150,000 on your home. You are in danger of foreclosure. Someone is willing to give you $143,000 for the home. The mortgage lender would approve the sale and forgive the $7,000 difference.

This works on a couple of levels: You avoid the credit issues that comes with a foreclosure, and the bank usually gets more money. Indeed, CNN Money describes the advantage of a short sale to mortgage lenders:

Ideally in a short sale, everyone wins. Borrowers avoid the ugly foreclosure process that destroys their credit, while lenders recoup more of their costs than they would by spending the time and money it takes to kick an owner out and resell the property.

Lenders typically lose about 19% of a mortgage’s value in a short sale, according to Clayton Holdings, a Conn.-based, provider of loan analytics, while they lose an average of 40% on loans that go into foreclosure.

Why aren’t more mortgage lenders doing short sales?

The puzzling thing is that mortgage lenders aren’t approving these short sales. This is a quick solution to the foreclosure problem, and it allows them to more easily recoup more of their losses. But mortgage lenders aren’t interested.

Which doesn’t make sense.

By many accounts, home price recovery will wait until 2010, so getting a price that covers many mortgage loans just isn’t feasible right now. And, with mortgage applications falling, one would think that mortgage lenders would want to keep some cash flow moving through. If a home is in danger of foreclosure, refusing to qualify a short sale is a silly thing to do.

Tags: foreclosure, short sale, home mortgage loan, mortgage loan blog,
mortgage loans, mortgage lenders, mortgage short sales

With existing home sales falling, and home prices dropping, you need to do everything you can to protect your home’s value. This is especially important if you are planning on selling in the near future and you are worried that a second mortgage or declining home values have put you upside down on your home mortgage loan.

Free Money Finance offers these three things to be especially aware of in terms of impact on your home’s value:

1. Foreclosures in the area. Where you live can have a big impact on selling your home. If there have been foreclosures in the area, it can mean your home’s value is reduced. This is something you should be wary of when you are buying a home as well. If you think the neighborhood is solid, and is likely to recover, you might consider buying one of the foreclosures. Once this mess is over, it might be a good place to be. But if you are trying to sell right now, the foreclosure on the next street over may impact the price you get on your home.
2. Environmental threats. This is very important. If your home is located near a landfill, your home’s value can take a 10 to 15 percent hit. If you are located near a site designated as a hazardous waste site, it could be a 25 percent hit to your home’s value. If you are moving into a home, be aware of what is nearby, and avoid environmental threats.
3. Crime and sex offenders. In most states, sex offenders are required to register. This means that if a sex offender settles in your neighborhood, potential homebuyers may find out about it — and it will result in a drop in your home’s value. Before you move in, check for the crime rate, and to see if there are sex offenders in your area. Family Watchdog can be a good site to visit to get this information.

Tags: home value, existing home sales, home mortgage loan, mortgage loan blog,
sex offenders, foreclosures