For many homeowners that face foreclosure may decide to have a short sale. This would require the homeowner to get the permission to do so by the lender. A short sale would be selling the home for less money than there is owed on the loan. It is the decision of the lender to allow the borrower to sell the home for a lower price. For example, if the loan was for $300,000 and the there is $200,000 left on the loan, but the home is valued at only $150,000 then the lender will need to agree to allow the home for at most $150,000.

If the home value dropped then the lender will need to determine if they would lose more money by rejecting a short sale by the borrower to another potential buyer. Going through short sale isn’t easy and it is recommended that the homeowner tries to work out a plan with the lender first. However, if the decision is to sell the home then the borrower must realize that it will still affect their credit by bringing it down anywhere from 200 to 300 points which is the same as if they had foreclosed on the property. Therefore, is it really worth it? The short sale will show up on the credit as a paid debt though which could be better for the borrower when they decide to purchase another home.

In order to proceed with a short sale the borrower will have write a letter to the lender explaining in detail of their hardship. They will need to include unemployment, bankruptcy, divorce, health reasons, and/or a death in the family such as the spouse or child. The borrower will need to explain why they cannot pay the difference of the short sale compared to their loan balance. The borrower will need to explain their current financial situation and if they have any assets. The lender will investigate the financial situation of the borrower and will make their own conclusion upon agreeing to the short sale or not.