The 6 Things You Must Have for a Short Sale
Short sales are becoming increasingly popular as a way to unwind from a mortgage that can no longer be paid. After much trial and error, there are some trends that are starting to emerge as to what kind of documentation the banks will require from borrowers.
Here are the essentials:
- Hardship Letter – A letter to the lender explaining what the hardship is. The hardship has to be verifiable. This is a couple of paragraphs explaining what the circumstances are and why the mortgage is no longer affordable based on the change in either the household income or bill structure (or both). It helps if it’s one of the “Big 3”. Job loss (income reduction), divorce, or a health issue which requires an unusual amount of out of pocket expenses are the most frequently reported changes in income. Another frequent submission is when a mortgage resets to a much higher payment and the household income has remained relatively flat. The idea is to be straightforward and concise and state the reason why the mortgage cannot be paid.
- Financial Worksheet – This is a comprehensive financial statement which tells the entire story of your financial condition. Recently, Wells Fargo and Bank of America have mandated that this information be submitted on their respective forms only. It is important to make sure that this data is given in the manner requested by each bank. This information is to include all forms of income; all bills including monthly gas bills; dry cleaning expenses; and out of pocket expenses for recurring medications. Very recently, the banks have accepted expenses used to help out parents or children as well. Be very thorough as it is easy to overlook some expenditures that are not normally reported on a regualr financial statement. All retirement accounts, stock accounts, and mutual funds need to go on this statement also.
- Two Years of Tax Returns – The most recent two years of returns are required. If you’re near April 15th of any given year, the bank may require that you send them this current year’s taxes before they will evaluate your file. The banks will all require that these returns are signed by the borrowers. If you file electronically, they will still require that the returns are signed. This is a common impediment to getting a completed file.
- 4506T Form – This is an IRS form that allows the bank to get directly from the IRS your completed tax returns from years past. This gives the bank the option to confirm that the information you are providing them matches the information you have submitted to the IRS.
- 2 Most Recent Pay Stubs.
- 2 Most Recent Bank Statements – This is self explanatory. The big thing to keep in mind here is that if you pull these statements off the internet, there is often a last page that has no information on it. People commonly do not submit this “blank” page. The banks want that page no matter what. Getting the bank statements properly submitted can squander so much time if all pages are not submitted at the outset.
There may be some additional paperwork that any bank can request. For example, a termination letter and proof that you have filed for unemployment compensation. They can pull up a credit report and ask for a clarification on a line item. But the list provided above is the essential information that all banks will mandate. Having this information filled out completely and on the proper form will save time and anxiety during this difficult process.