3 Must Have Qualifications for a Short Sale
While the misconceptions of what qualifies a seller for a
short sale are many, the reality is actually very simple.
Following is an explanation of the three major items that
banks will be looking for to consider a seller for a short sale. While
there will be much more information required, this is an excellent
place to start. A seller who does not meet all three of these
thresholds will not qualify.
1. Financial Hardship
experiencing a ‘financial hardship’. A financial hardship is a verifiable
issue that has caused your client to miss payments or have financial
difficulties.
Financial hardships can be issues such as:
- Mortgage Payment Adjustment
- Job Loss
- Too Much Debt
- Business Failure
A material change in-between the day the mortgage was signed
and today that has affected the borrower’s ability to pay.
2. Monthly Shortfall
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 a client has a monthly shortfall or not is
actually relatively easy.
The equation is:
Total Monthly Income – Total Monthly Expense = Monthly Shortfall
If your client does not have a monthly short fall but will have one
soon due to a payment increase or pending layoff, etc. then they
still can qualify for a short sale as long as this issue is verifiable.
3. Insolvency
In order to qualify for a short sale, your client cannot have the
means to pay down his mortgage. This means that the mortgage
company wants to see that your client owes more
than he has in cash (know as being insolvent). Your
client does not however 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 their obligation.
In order to qualify for a short sale, your client cannot have the
means to pay down his mortgage. This means that the mortgage
company wants to see that your client owes more
than he has in cash (know as being insolvent). Your
client does not however 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 their obligation.
Alex Charfen, Co-Founder of the Distressed Property Insitute
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