What Is A Short Sale And Is It For You?

What Is a Short Sale?

A short sale is when a homeowner sells their house for less than what they still owe on their mortgage. The bank or mortgage lender must approve the sale, even though the price is lower than the loan balance.

Example: 

Eddie owes $200,000 on his mortgage but his home’s current value dropped because of the market conditions. In another situation, Eddie could not keep up with the monthly payments because he lost his job or he had a big medical expense. These are the real-life situations that cause house prices to sell at below market price. 

Now Eddie may sell it for $150,000 because of the market condition and he may sell it only if the bank agrees. There are also times when the bank does not force people to pay the difference and in this case the $50,000 deficit.

Short sales were once rare, but today, banks are more open to them. That’s because foreclosures (where the bank takes the home back) cost more money and take more time. A short sale can help everyone move forward more quickly.

Who Should Consider a Short Sale?

This is ideal for people in tough financial situations where they are having difficulty keeping up with monthly payments. This option, however, is not ideal for people who are capable of paying their monthly payments on time. Which is why you need to have it approved by your lender first.

You might be a good candidate for a short sale if:

• You're going through a divorce or separation
   
• You’ve lost your job or had your hours cut
   
• You’re dealing with medical bills or other large debts
   
• You’ve had to move for a new job or family reason
   
• You’re close to defaulting on your loan
   
• You’ve already missed mortgage payments
   

Each bank or lender has its own rules, but many will consider a short sale if they see that you're genuinely struggling and you don't have the money to pay the difference.

How Does a Short Sale Work?

The short sale process might feel a little overwhelming at first, but let’s break it down into easy steps.

Step 1: Talk to Your Lender

The first step is to contact your bank or mortgage lender. Tell them about your situation and ask if you can apply for a short sale. They will usually ask for some documents to prove you’re facing financial hardship.

These may include:

• Pay stubs or unemployment documents
   
• Bank statements
   
• A letter explaining your situation
   
• A copy of your home’s current market value (from a real estate agent)
   

Step 2: List Your Home

Next, you’ll need to list your home for sale — just like a regular sale. It’s best to work with a real estate agent who understands short sales. They can help set a fair price and guide you through the steps.

Step 3: Accept an Offer

When someone makes an offer to buy your home, you can accept it. But remember — your bank still needs to approve the sale.

Step 4: Lender Reviews the Offer

The lender will look at the buyer’s offer and decide whether or not to approve it. This can take time — sometimes several weeks or even months. Be patient!

If they agree, the sale can move forward. If they say no, you may have to look for a new buyer or negotiate a new price.

Why Buyers Like Short Sales

Short sales can also be great opportunities for buyers, especially first-time homebuyers looking for a good deal.

Here’s why:

• Homes are usually priced below market value
   
• There’s less competition than in regular listings
   
• You may get more house for your money
   

But keep in mind — short sales take more time and can be less predictable. The bank has to review and approve the sale, which slows things down. You might also need to do repairs, since homes sold as short sales are often “as-is”.

Pros and Cons of Short Sales

Benefits for Sellers:

• Avoid foreclosure and protect your credit score
   
• Walk away from a home you can no longer afford
   
• Often no need to pay the leftover balance (depends on lender)
   
• Less emotional and legal stress compared to foreclosure
   

Benefits for Buyers:

• Lower purchase price
   
• Less competition in some markets
   
• Good investment opportunity
   

Challenges for Both:

• Longer closing time
   
• More paperwork and approval steps
   
• Buyer may need to wait weeks or months for lender approval
   
• Property may need repairs
   

How Long Does a Short Sale Take?

On average, a short sale can take 2 to 6 months to complete. This includes time for:

• The seller to get approved by their lender
   
• Finding a buyer
   
• The bank reviewing and accepting the offer
   

It’s not quick, but it’s often worth the wait if you’re serious about selling or buying.

Is a Short Sale the Same as a Foreclosure?

Nope — they’re not the same.

Short Sale:

• The homeowner still owns the home
   
• The sale is approved by the lender
   
• The seller avoids foreclosure on their credit report
   

Foreclosure:

• The bank takes the home
   
• The homeowner is forced to leave
   
• It causes serious damage to your credit
   

That’s why many people try for a short sale before foreclosure happens. It’s usually better for your future finances and credit.

Final Thoughts

Whatever strategy you have in obtaining or selling a house, whether it is newly constructed, fairly new, old, or in dire shape, they will always have their own unique advantages and disadvantages. 

Sure, short sales are great if you are trying to sell a house below market price, but that is if you are willing to take the risks. Shorts sales are a great deal not all of the time but depending on a person’s situation.