If your property is underwater and you’ve exhausted all other options, selling your home in a short sale may be your only option to avoid foreclosure. A short sale, or a pre-foreclosure sale, is when you sell your home for less than what you actually owe on it and the lender forgives the loan.

Short sales work similar to any other real estate transaction. The only difference is that a real estate agent and your mortgage company is involved in the process.

There are four types of short sales:

FHA Short Sale

A FHA short sale falls under Housing and Urban Development (HUD) guidelines:

  • The home is identified as 1 to 4 units
  • Non-occupied homes cannot be rented out for more than 18 months
  • The home was not purchased as a rental residence

FHA short sales can take about 4 to 6 months to complete, which is an average time for short sales. That time doesn’t include the process to determine if you qualify for a FHA short sale. Banks approve the FHA short sale based on the purchase contract.

HAFA Short Sale

If you choose to use HAFA, you can choose to use either a short sale or a Deed-in-Lieu (DIL) to avoid foreclosure. Unlike a HAFA short sale, a DIL allows you to transfer ownership of the title back to your mortgage company. You may be eligible for a HAFA short sale if:

  • You have documented financial hardship
  • You have not purchased a home within the last 12 months
  • Your mortgage was obtained on or before January 1, 2009

Fannie Mae Short Sale

Fannie Mae short sales take longer to close because sellers need Fannie Mae’s approval along with the bank’s approval. Fannie Mae short sales differ from others in that they won’t approve the short sale unless the seller is in default.

Freddie Mac Short Sale

If your loan is owned by Freddie Mac, you may be eligible to participate in their short sale program. Freddie Mac’s short sales simplify the process by:

  • Allowing qualified servicers to make decisions independently
  • Offering a quicker transition out of the home
  • Expanding the list of allowable financial hardships

Need Help Navigating A Short Sale?

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.