There's a whole slew of ominous terms being bandied about these days when people talk real estate. With some northern US towns hit so hard by the housing downturn that over 30% of their houses are empty, the increase in anxiety is no great wonder. But homeowners need not panic, there are alternatives to foreclosure.
Getting in over your head financially doesn't have to mean walking away from your home investment. As a first step, you should always try to work things out with your bank. Contact them as soon as you're having trouble with your payments. Banks don't like foreclosures and you may be able to make a deal that will make your payments bearable and allow you to keep your home. There are also some programs though HUD that can help you stay put until the market balances out.
Of course working out a deal isn't always possible but saving your credit rating is. Once you've exhausted your options, you may want to try to negotiate a short sale.
WHAT IS A SHORT SALE?
When your home is worth less than its mortgage ti's known as an upside down mortgage. When a lender agrees to absorb the difference in a sale, it's called a short sale. Like a last exit before foreclosure, short selling your home won't make you any money but when your debt is more than you can handle, negotiating a short-sale may rescue your credit rating and let you avoid the embarrassment of foreclosing.
In order to qualify for a short sale:
1. Your loan must be in default at least two months
2. Your house must be worth at least 63 percent of what you owe and sell for at least 82 percent of the "as-is" appraised value.
3. You must sell the house within three to five months
4. You must convince your lender to assume the cost of the short sale:
THE COST OF SELLING = Real estate commissions + Taxes + Closing costs + Title fees + Liens of record + Balance of all loans on the home including interest and late fees
THE COST OF THE SHORT SALE = Cost of selling - Appraised value
Once these figures are delivered to the bank, the lender can take up to 45 days to balance the cost of the short sale against the cost of a foreclosure. Not every lender will agree to a short sale though, which is why hiring a realtor may be the best way to negotiate this kind of deal. Contact a realtor in your area that's experienced in negotiating this type of arrangement. They may have more leverage with lenders and be able to guide you through the process. They will also be able to help you find a buyer.
Given below are certain exit strategies that you should know before you carry out your first deal.
. Wholesaling- Wholesaling is carried out when someone purchases a property, which needs to be extensively repaired, and then reselling the property to someone who wants to carry out those repairs. More often than not, this approach acquires the lowest return, but, it is the also has the fastest turnaround.
. Holding as Rentals- If a house needs only a little sprucing up, it would be enough to turn the deal into a profit. However, you ought to know that this exit strategy is not apt for you if you don't wish to be the landlord, or you lack a positive cash flow.
. Reselling Outright- Many people opt for reselling outright. In such cases, a general rule of thumb followed is trying to negotiate the price for no less than 75%-80% of the original ARV. If not, you may be unable to get sufficient returns when you sell the property. You will have to recover all the holding expenses that you bring upon yourself while waiting to sell the property.
Given below are some significant factors that prove that formulating an exit strategy is advised before real estate agents begin the negotiation process:
1. Everyone has certain moral principles to abide by, so do real estate agents. Even though real estate gents are mostly concerned about their profit, they should consider that homeowners are handing over part of their well-being. No one is keen on putting a family or individual at risk. Hence, if you are a real estate agent, it is necessary that you have a certain plan of action before take on any responsibility.
2. Another reason is that after you acquire the acceptance letter you have a limited amount of time to work. Don't forget you also have to work on your next deal, prepare a house for sale and there is hardly any time to design the exit strategy. Don't be reactive but proactive.
3. Last but not least, if you predetermine the exit strategy before time, you can easily close the deal for greater profit within 45 days at the most. There are chances that the deal may fail because of inadequate preparation.
Always make sure you have a better understanding of the deal and understand the possible earnings. Take some time off to gauge the digits on the basis of the exit strategy you use. Don't forget that not every exit strategy reaps the same profits.
Eventually, you may find that even though you can negotiate the short sale it may be futile. You might just not acquire sufficient profit after exiting and on the other hand a particular deal might be too risky to invest in.
Both Melissa Oconnell & Kris Koonar are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Melissa Oconnell has sinced written about articles on various topics from . Melissa O'Connell is a licensed and Scottsdale resident with 15 years experience buying and selling. Melissa Oconnell's top article . to your Favourites.