A short sale occurs when a homeowner owes more money on their mortgage loan than the current market value on the property. Typically, the sale takes a long time to complete the buying and selling process. An exact amount of time is difficult to determine. Those who are interested in a short sale as a way to get out of a foreclosure or any other reason should be prepared for it to take a lot of time. If you’re able, you should continue to pay the loan while the short sale is taking place. Doing so will help you avoid points against your credit.
Below, you can learn about the short sale process and get an idea of how much it might cost.
Short Sale Process for Sellers
To sell the home as a short sale, the homeowner will start by turning in a package that is necessitated by the bank. It will include information on the market value of the house, the homeowner’s finances and the hardship that the owner is currently going through which would make the short sale an option. Once the application is turned in, the homeowner can also make offers on the home to the bank. Since banks can choose the timeline when it comes to responding to offers, the process can mean a long waiting time.
Approval Timeline
There is extensive paperwork that is sent back and forth between the homeowner and the bank. They are as follows:
- Collection of Documentation – One to Three Weeks
Homeowners have to first prove they qualify for this kind of sale. To do so, they have to turn in different documents that detail their financial difficulty while also proving the home’s value. This process starts when the homeowner gets in touch with the bank to figure out what they can expect to receive. Since this includes collecting supporting documents and writing a letter, it can take up to three weeks.
- Property Valuation – One to Three Weeks
The lender requests a property valuation from either an appraiser or a real estate professional. The process can take as long as three weeks, all dependent upon when the bank has scheduled the appraisal.
- Negotiations – One to Three Weeks
After the homeowner has turned in their paperwork, the lender could take many weeks to give a response to the home buyer. This could include an approval or a counteroffer and can take up to three weeks.
- Escrow and Closing – One to Six Weeks
In a traditional home sale, the process of escrow usually takes around a month. When it comes to a short sale, this process can take up to six weeks.
Exceptions
There are a few factors that could cause the process to go on longer than it otherwise might. Examples include:
- A Lost Buyer
In some cases, a potential buyer may lose interest while waiting to get information from the bank. Should the bank not reply in time, the buyer can just walk away. When the buyer is lost, the entire process has to start over.
- Multiple Lien Holders
If the homeowner has more than one mortgage on the home, the lien holders have to mutually agree to a settlement on the home. If they don’t agree, the deal can fall through.
- Short Sale Rejection
The lender could reject the home buyer’s offer, meaning the buyer will need to make another offer. That, or the homeowner has to wait for a new buyer to make a new offer.
Short Sale Process for Buyers
Though traditional home sales include similar processes, short sales necessitate more time for the buyer as well as the seller. The buyer has to wait for the response of the lender, which can take quite some time. Below are some other time requirements to consider as a buyer of a short sale:
- Mortgage Approval – One to Two Months
Getting approved for a mortgage can take many home buyers several months. It begins with pre-qualifications and ends with the signing of the loan documents, which can take up to two months.
- Finding a Home – One Week
Most buyers take up to a week to find a house to buy, including finding a home online and then visiting the home they might like to buy. After seeing the home, they might come back again before they make an offer, or they can make an offer right after that initial visit.
- Making an Offer – One to Two Weeks
It takes a few weeks to make an offer to a homeowner, since the homeowner and the buyer may need to negotiate before landing on an agreeable price. Then, the short-sale offer has to be approved by the lender.
- Getting the Offer Approved – Up to 12 Months
A lender can take up to one year to approve the offer. The buyer has to wait for a reply from the lender, and in some cases, buyers grow impatient and walk away.
Is it possible for the short sale process to be sped up?
While there is no definite way to speed up a short sale, some homeowners and buyers can do a few things to try and pick up the pace:
- Work with experienced professionals. Choosing an agent with experience in short sales will mean they can move through the difficult process more quickly than someone without the necessary experience.
- Structure your offer correctly. Lenders want to get back as much money as they can from the sale of the house. Don’t offer a price that is well below the market value of the home, or they are likely to decline it.
- Make an offer free from contingencies.
Contingencies can be big obstacles on the path to having an offer accepted. Those who make offers that have as little in the way of contingencies as possible may be able to enjoy a swifter acceptance of the short sale from the lender.
- Overall, be patient.
A short sale is notorious for taking a long time, and it is important to sit back and allow the steps to properly play out.
