A short sale can be an option that avoids the negative implications of a foreclosure for the homeowner and the mortgage-holder for those homeowners who are unable to make their mortgage payments or who owe more than the home is worth.
Freddie Mac SVP Tracy Mooney said in a blog post Monday that for a standard short sale Freddie Mac requires servicers to approve or deny homeowner’s applications within 30 days, and short sales should close within 60 days after approval. Short sales can be an option for investment properties, second homes, second mortgages AND those who are current on their loans. Those who are current on their loans must meet eligibility requirements and the property must be their primary residence with a debt to income ratio of 55% or greater.
Freddie Mac offers second lien holders up to $6,000 in exchange for the release of a subordinate lien, extinguishing the underlying indebtedness, and waiving their right to pursue a deficiency judgement against the homeowner.
Another concern of homeowners is the affect on their credit score that a short sale would have. A short sale may be better choice for some than a foreclosure as far as their credit score is concerned.
The affect of a short sale on a borrower’s ability to obtain a new mortgage depends on the circumstances. 24 months is the time frame to re-establish credit and apply for a new mortgage in the case of medical emergencies, or loss of income. In the case of “personal financial mismanagement” the time period is 48 months. Home owners may consider a short sale as an option if they don’t qualify for loss mitigation options, need to move to obtain or maintain jobs, or are underwater.