Basic Types of Short Sale Programs
There are many short sale programs from which homeowners can choose any one. If we choose the wrong short sale program then as a result not only short sale might be rejected but homeowners also might wish that they never had chosen that particular short sale program. Before looking at the different types of short sale programs homeowners should realize that some of the options are not available to them. The type of program which is selected by homeowners may depend on the particular type of loan and on the investor. In 2010 the HAFA short sale program got off on the wrong foot. As a result HAFA gained a bad reputation among real estate agents as a type of short sale that does not work.
Before starting work o the short sale homeowners should ask some of the real estate agents about a certain type of short sale. Some of the agents have no experience and others do not want to gain experience due to all of the horror stories they have heard about certain types of short sales. The type of short sale through which homeowners are buying or selling almost entirely depends on the type of mortgage secured to the subject property. Basic types of short sale programs selected by the homeowners are following;
- VA short sale and FHA short sale: – If the present loan of the homeowners is guaranteed by the VA then homeowners have a VA loan. If it is insured by the FHA then homeowners have FHA loan. One of the easy ways to determine that whether the loan is VA or FHA is to look at the percentage of the original sales price. If the initial loan of the homeowners was originally closer to the 97% of the original sales price then it is probably an FHA loan. the main things to know about the VA short sale or FHA short sale are;
- Neither type of loan will qualify for the HAFA short sale program but the homeowners can receive a relocation incentive.
- They will take longer than usual to get approval because of the additional layer to approve.
- The government will pay for a full-blown appraisal and expect market value.
- HAFA short sale program: – if the homeowners have more than one lender then both of their lenders must participate in HAFA in order for homeowners to qualify for a HAFA short sale. The HAFA short sale is a government program that may pay the homeowners up to $3,000 to do the short sale and pay the bank also to do the short sale but with certain restrictions. When the guidelines of HAFA program were established they were stricter initially and have softened over the years. The biggest benefit of the HAFA short sale program is the banks must release homeowners from personal liability and there is no deficiency judgment after a HAFA short sale.
- Fannie Mae short sale: – Fannie Mae is a government sponsored organization. The homeowners need to do a Fannie Mae short sale if Fannie Mae is the investor for their loan. This will add an additional layer of approval to the short sale process. If homeowners have a second loan and that second lender demands more money than Fannie Mae will allow then homeowners might have a problem in that short sale. They may need to deal with the second lender before they open the short sale at Fannie Mae.
- Freddie Mac short sale: – Freddie Mac is the cousin of Fannie Mac. Freddie Mac is also a government-sponsored Homeowners will need to do a Freddie Mac short sale if Freddie Mac is the investor for their loan. This will add an additional layer to the approval of the short sale process.
- Traditional short sale: – A traditional short sale is the most common type of short sale program. Short sale sellers do not want the delays that can be ingrained in government programs. Most of the banks and credit unions offer the traditional short sale program but homeowners need to supply financials, tax returns and generally document a hardship through a formal hardship letter but besides all this the process of short sale is quite painless. Mostly banks say yes for the short sale and reject the foreclosure.
Why sellers want to do a HAFA short sale: – Most of the sellers have never heard about the HAFA and they do not have idea that why they would do a HAFA over a traditional short sale. But those of the sellers who follow short sales closely know that there are many benefits to a HAFA. Some of the common benefits of the HAFA are as;
- HAFA is the full release of liability.
- HAFA is to receive up to #3,000 in relocation funds.
- Bank cannot foreclose during the HAFA short sale process.