TheDawgByte

     If you are faced with selling your home due to an unforeseen change in your financial well-being and you expect the total amount you owe on your mortgage will be more than the selling price you can get for your home in the current real estate market in your area, you may be looking at a Short Sale situation.  A Short Sale is one where the net proceeds from the sale of your home will not cover your total mortgage obligation and closing costs AND you don't have any other sources of money to cover the deficiency.  What can you do?  What are your options?

     STEP 1.  Consider a Loan Modification:  Contact your mortgage lender and ask them if they offer any programs to help you stay in your home.  They may be willing to refinance your existing mortgage at a lower interest rate; they may agree to a modified payment plan to help you get caught up; they may offer a forbearance period, if your distressed financial situation is temporary.  Should a loan modification still not be enough for your distressed financial situation then a Short Sale might be your best option.

     STEP 2.  Contact a Real Estate Professional:  Short Sales seem to have a life all their own!  Every week seems to bring a new Federal regulation and guideline, lenders vary in their ability to cope with the increasing numbers of Short Sales seeking approval, and not all real estate agents are experienced in dealing with Short Sales.  You want to work with a real estate professional who has strong negotiating skills, a working knowledge of the Short Sale process and a track record of success in getting Short Sales approved and closed.

     STEP 3.  Gather Your Documentation:  Your lender will provide you with a list of documents they will require to consider a Short Sale.  This "Short Sale Package" typically will include:

                    .  A hardship letter detailing your financial distress
                    .  Proof of income and assets
                    .  Copy of purchase contract and listing agreement
                    .  Copies of your federal income tax returns for previous two years.

     STEP 4.  Wait:  Short Sales are anything but short!  Even the most organized and complete Short Sale Package will take time for the lender's review.  It can and it will take from several weeks to several months for this review.  If you only have one mortgage, this step can take up to two months.  If you have a first and a second mortgage, expect this step to take up to three months.  When the lender does finally respond, it can be with a written Short Sale approval, a counter-offer or a denial.

     STEP 5.  Lower Your Expectations:  Even if your Short Sale is approved in writing by your lender, it may not be the end of your financial concerns.  You lender may request that you sign a promissory note agreeing to pay back the amount of your loan that wasn't paid off by the Short Sale.  While the 2007 Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act provides that homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012, this real estate professional strongly encourages you to consult with a real estate attorney and tax adviser to see if you qualify.  Short Sales do impact your credit score.  However, a Short Sale tends to impact your credit score less than a foreclosure or bankruptcy.

It can be easy for homebuyers to overlook home insurance costs. Most buyers tend to focus on factors such as quality of neighborhood, property taxes, school districts and available recreational and cultural outlets. But the seemingly mundane detail of home insurance can add up to a big investment. The size, location, construction and overall condition of a house can affect insurance cost, choice and availability, according to the Insurance Information Institute. When looking at prospective homes, the Institute recommends that homebuyers consider the following:

 •  Where is the nearest fire department? Houses located near a fire station usually cost less to insure.

 •  Are the plumbing and electrical systems in good condition? Poorly maintained, unsafe and/or outdated systems are more costly to insure than well-maintained ones.

•   Is the home vulnerable to wind damage? A beach home may be more susceptible to wind damage and can be more costly to insure than homes located inland.

•   Is the home at risk for flooding or located in a flood zone? Most standard homeowners' insurance policies do not cover floods, so you may need a separate policy, which you can get through the National Flood Insurance Program, which is serviced by private carriers, or from a few specialty insurers.

•   Is the home located in an earthquake-prone area? If so, earthquake insurance requires an endorsement or a separate policy.

•   Is the house well constructed and well maintained? Homes built with disaster-resistant materials and designed to meet current building codes are more likely to withstand natural disasters.

Your home is your biggest investment.  Make sure you protect it with the right type of homeowners' insurance policy.