You can no longer afford your mortgage payment and you’ve decided to try to get out from under your house. The easiest thing would be to just let the bank go through its process and foreclose on your house. But you don’t want a foreclosure on your credit report. A short sale is a good alternative. You’ll market your home and agree on a price with a buyer, subject to your lender agreeing to take less than the loan balance as payment in full. But it’s not that simple. There’s one more thing. The bank will only approve a short sale if they believe that it’s their best option. They’d really rather that you keep making payments as originally agreed. In order to convince them that their only other choice is foreclosure, you need to write a convincing hardship letter.Lenders know which kinds of things make loans default. If you claim to have a financial hardship, they will want to know specifically what the problem is. And they’ll want to verify it. Here are some of the more common financial hardships that tell lenders that a loan is not going to succeed.Mortgage payments are no longer affordable because they’ve increased, usually due to interest rate adjustments. If you were one of the many home buyers who got an adjustable rate loan, you probably qualified based on the initial payment amount. If your income didn’t increase as much as the payment did, it’s likely that the new payment amount isn’t affordable to you now. You are not the only person who thought they’d be able to refinance their home at a lower fixed rate in a couple of years. Unfortunately with values falling, the home’s value often falls short of what’s necessary for a refinance. Just like when you first applied for the loan, the bank will want to verify your current income. If your ratios would allow you to qualify for the current monthly payment, they won’t let you out of it.Your income has fallen. Many homeowners have lost their jobs or taken pay cuts, making it impossible to make the mortgage payment each month. This is true whether you work as an employee or you’re your own business. Lenders understand that lack of income means that you cannot and will not continue to make mortgage payments. If you don’t have the money, what can you do?Your expenses are greater than before. Has an unexpected illness left you with unmanageable medical bills? Have property taxes increased to the point that you can no longer afford your home? Even if the cause was not completely out of your control, increase debt levels make it difficult to pay the mortgage payment.Divorce or death of a spouse. Most families qualify for a home loan based on two salaries. If there’s only one income now, you won’t be able to afford the same payment as before. Even in the case of divorce, where both partners still exist and have income, lenders recognize that you’re no longer going to be living in the home together. This means that one of you has housing expenses elsewhere.Your home has been damaged. Of course the bank required that you have insurance on your home, but sometimes insurance doesn’t cover all of the damage in the case of a fire, flood or earthquake. Large expenses due to property damage may be seen as a hardship in the lender’s eyes.You have to relocate. If you have to move for your job or for military service, the mortgage company understands that you won’t be able to keep up the payments on this house while paying for housing in the new location.Hardships happen all the time. If property values had increased overall since you bought you home, you would be able to see your home, pay off the mortgage and move on. In the current market, homeowners who owe more on their mortgages than their homes are worth just don’t have that option. Short sale is a viable option to get out of your loan without decimating your credit, if you can prove to the lender that you have a financial hardship.
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