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While the misconceptions of what qualifies sellers for mortgage short sales are many, the reality is actually very simple. Following is an explanation of the three major items that banks will be looking for to help consider sellers for short sales. While there will be much more information required, this help on short sale is an excellent place to start. A seller who does not meet all three of these thresholds will not qualify.

Short Sale Help 1

First and foremost a lender will want to see that you are experiencing a ‘financial hardship’. A financial hardship is a verifiable issue that has caused you to miss payments or have financial difficulties. Financial hardships can be issues such as: mortgage payment adjustment, job loss, too much debt, or business failure. A simple definition for ‘financial hardship’ is: a material change in-between the day the mortgage was signed and today that has affected the borrower’s ability to pay.

Short Sale Help 2

Almost every lender will want to see that a potential short sale client cannot afford to pay their mortgage. The way that this is demonstrated is on a financial worksheet that is essentially a monthly profit and loss statement. While this may sound difficult in reality determining whether you have a monthly shortfall or not is actually relatively easy. If you do not have a monthly short fall but will have one soon due to a payment increase, pending layoff or other issue, you still can qualify for a short sale as long as this issue is verifiable. To help determine this short fall, the equation is:

Total Monthly Income – Total Monthly Expense = Monthly Shortfall

Short Sale Help 3

In order to qualify for a short sale, you cannot have the means to pay down your mortgage. This means that the mortgage company wants to see that you owe more than you have in cash (known as being insolvent). You do not have to be completely broke—this is a common misconception. The lender will want to see that over time the borrower will not be able to pay his obligation.

Tags: mortgage, short sale help, short sales

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