It’s every homeowner’s worst nightmare – the house that they purchased and believed had such promise to be a great asset turns out to be the complete opposite. Home values can rise steadily, or they can plummet dramatically and leave the homeowner with an ‘upside’ down home loan.


If you find yourself with an upside-down mortgage, it means that you owe more on your loan than the market value of your home. This won’t immediately become a problem if your mortgage payments are affordable and you are happy to stay in your house. However, it will take longer and be more difficult to build equity, which makes refinancing and selling your home a little trickier.



Short Sale

If your home loan is upside down, the best option is to consider a short sale. In order to complete a short sale, the lender must agree to forgive a portion of the debt owed, so that the homeowner can sell the property for less than they borrowed. Put simply, the seller is unable to repay the lender in full and is therefore “short.”  A short sale can be beneficial to the lender as it allows them to recoup part of the debt without having to repossess the home. Foreclosures are expensive and time-consuming for a lender, therefore a short sale can be an attractive prospect in comparison.


A short sale is in many ways similar to a conventional sale. The seller typically puts the home on the market as a “short sale/subject to lender approval” and waits for an interested buyer to present an offer. Once the homeowner receives an offer, it is necessary to apply for short sale status from the lender. The lender usually requires the seller to provide a letter explaining the financial hardship that they are facing, as well as other documents confirming this, such as pay stubs and tax returns. As a final step before approval, an appraisal is required to value the property. If the result of the appraisal is in keeping with the offer, and all other conditions have been satisfied, the lender will usually give permission for the short sale to complete.




Benefits of a Short Sale


Avoid Foreclosure

Foreclosures are expensive for both the homeowner and the seller. The terms of most mortgages require the borrower to pay the lender’s foreclosure fees, and for a homeowner who is facing financial ruin, this is an unwanted added cost. By negotiating a short sale with your lender, you can avoid the stress and costly procedure of foreclosure.



New Beginnings

Foreclosure damages credit heavily. After a foreclosure, it can take up to eight years to be eligible for a conventional mortgage. By selling your home in a short sale, you can be eligible to buy another house in as little as two years.



Peace of Mind

Having a home loan that is upside down can be extremely stressful. Although a short sale can be a laborious process, selling your home can relieve some of the financial burdens of having negative equity.


Having an upside-down home loan can be extremely disheartening, but by exploring your options and opening a line of communication with your lender, the outcome becomes a much more positive one for all.