You’ve made the painful decision to let your house go and start over. You could just wait until the bank forecloses, but that will damage your credit for years to come. A short sale is a good alternative. You’ll market your home and agree on a price with a buyer, subject to your lender agreeing to take less than the loan balance as payment in full. That’s all there is to it, right? Not exactly. There’s one more thing. The mortgage company is still hoping that you can make the mortgage payments. You need to write a letter explaining to them that your situation makes it impossible to continue making payments on the loan.
There are certain things that the bank accepts as valid hardships, and they’ll confirm what you tell them. Here are some of the factors that are likely to convince your lender that you can no longer make mortgage payments.
Mortgage payments are no longer affordable because they’ve increased, usually due to interest rate adjustments. If you were one of the many home buyers who got an adjustable rate loan, you probably qualified based on the initial payment amount. If your income didn’t increase as much as the payment did, it’s likely that the new payment amount isn’t affordable to you now. Back then many borrowers thought they would be able to refinance before the payments went up. Unfortunately with values falling, the home’s value often falls short of what’s necessary for a refinance. The lender will want to verify your income again just like they did when you got the loan in the first place. If you make enough to qualify for the new payment, you’re stuck.
Your income has fallen. Many homeowners have lost their jobs or taken pay cuts, making it impossible to make the mortgage payment each month. This is true whether you work as an employee or you’re your own business. Banks recognize the fact that if your income has dropped significantly there’s not much chance that you will be able to stay on top of the payments, or to catch up if you’ve fallen behind. The money just isn’t there.
Your expenses are greater than before. Has an unexpected illness left you with unmanageable medical bills? Have property taxes increased to the point that you can no longer afford your home? Even if the cause was not completely out of your control, increase debt levels make it difficult to pay the mortgage payment.
Divorce, separation or loss of a borrower. Most families qualify for a home loan based on two salaries. If there’s only one income now, you won’t be able to afford the same payment as before. Lenders recognize that in divorces, both people and their incomes still exist, but they won’t both be living in the house. The same incomes now must be used to support two separate residences.
Your home has been damaged. Lenders require you to have fire insurance on your home, but sometimes something happens that’s not covered, like an earthquake or a flood. Large expenses due to property damage may be seen as a hardship in the lender’s eyes.
Relocation. If you have to move for your job or for military service, the mortgage company understands that you won’t be able to keep up the payments on this house while paying for housing in the new location.
Hardships happen all the time. If property values had increased overall since you bought you home, you would be able to see your home, pay off the mortgage and move on. In the current market, homeowners who owe more on their mortgages than their homes are worth just don’t have that option. Short sale is a viable option to get out of your loan without decimating your credit, if you can prove to the lender that you have a financial hardship.
When you’re back on your feet and ready to buy a home again, you can apply for a home loan online. Just look at these beautiful new homes in Chula Vista and you’ll start thinking about how to shore up your credit quickly.
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