With all the home foreclosures in America, a lot of “short sale” businesses have sprung up within the real estate market. If you are being foreclosed on, or considering bankruptcy it is important to know how these businesses can help and possible hurt you.
You hear and see it all the time “stop foreclosure” on the radio, billboards, internet pop-ups, mailers, but what exactly do these companies do? If they want to buy your home, usually they will be made up of a group of investors offering to negotiate a short sale in lieu of foreclosure for you. A short sale is when an uninterested party negotiates with your mortgage lender for a lower pay off for your home instead of going into foreclosure.
Now your probably asking yourself, how do these investors benefit from helping me? Well chances are they are looking for the people’s homes that they can do a short sale on and then they will have an investor/buyer lined up to purchase your home. The end result is that you have to move out or you can keep paying the investor and rent your home from them. You do get to avoid foreclosure this way, but probably still end up losing your house, unless you can make the payments to the investor. Many times, you’ll find the investors have made the payment unaffordable.
So why do investors buy your home? Because they can get it for a cheaper price and most likely a better interest rate. They can then rent it out or keep it and wait for the market to turn and sell it, either way they will profit. If you are way behind on your mortgage and have no plan of catching up this may be a good option for you.
There are things you should be aware of though, before using the short sale method. First if you are considering bankruptcy along with the foreclosure, you need to seek advice from a lawyer, before proceeding with the sale. Selling property for a loss can be considered income by the trustee and can prevent a bankruptcy discharge.
Keep in mind, in today’s market, getting rid of your home may be the best option for many people. If you look at the big picture, getting a more affordable home in the future may be your best bet. If you are worried about ever getting a home loan again after a foreclosure, it is possible. According to FHA loan requirements, borrowers must be out of a foreclosure for 3 years, with little negative marks since the foreclosure to be approved for a new mortgage. So if you have a solid job and good credit, 3 years after your foreclosure you can still look into buying another home. There are also other options, outside of an FHA loan; many people can get a new loan in as little as 1 year.
These are both things to consider before trying to keep your home, instead of trying to avoid foreclosure. If you are doing it just to save your credit so you can buy a new home, it might not be that big of a deal to wait a year or two. In a few years, you will be able to find a new home that is less expensive and more affordable. Who knows, in 3 years you may be able to purchase your same home, but at a lower cost!
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