In a Florida short sale, the bank is already accepting a big loss on the difference between the unpaid mortgage and the selling price of the short sale home. Banks have more incentive to do a short sale than a foreclosure since they lose more money in a foreclosure.
Because of this, banks will most likely squeeze anything they can out of the seller and not the buyer, since the seller is the one who owes them money.
There are other reasons why banks might demand a seller contribution:
1. The seller has other assets or disposable income. Banks review a seller’s financial statement to determine the seller’s monthly income and expenses . If they see that the seller has some money left over after expenses, or other liquid assets, savings, or disposable income, they will ask for it.
2. The seller refinanced and pulled cash out of their home equity. If the seller pulled out cash from the home to buy an expensive boat or take a luxury cruise, then this is considered by the bank as a temporary setback and the bank may ask the seller to contribute. If the selling price of the home is not enough to satisfy the bank’s required net, the bank may require the seller to pay the difference.
3. The seller does not have a financial hardship. Some banks will agree to do a short sale if the seller has proof of a valid hardship which is permanent but not necessarily financial in nature. However, if the bank sees that the seller still has a strong cash flow, the bank may ask for a seller contribution.
4. Deficiency judgment. In the state of Florida, the banks have a right to pursue the seller for the difference between the sales price of the short sale and the unpaid mortgage balance.
Although banks have the right to ask for a seller contribution, they acknowledge that most short sale sellers do not have that kind of money, or they wouldn’t be doing a Florida short sale in the first place. Banks may accept an unsecured promissory note if the seller does not have sufficient cash to pay for the deficiency or seller contribution. Banks will often agree to non-interest bearing terms and a 3 to 15-year payback of principal.
If you are planning on buying a Florida short sale, take note of these new loan requirements for getting a mortgage. With the start of the new year, lenders have set in place new requirements for getting a mortgage loan.
Since the housing crisis was brought about by borrowing catastrophes, these new lender guidelines being implemented under The Consumer Financial Protection Bureau’s Qualified Mortgage (QM) are being put in place to avoid the housing meltdown from happening again.
Some of these requirements are as follows:
A maximum debt-to-income ratio of 43. This new rule will not allow for any circumstances to offset the DT like a big down payment or huge cash reserves. A borrower with a DTI over 43% will not qualify for a loan.
Ability to repay. Self-employed borrowers must prove they have sufficient cash flow to pay their loan. This can be challenging since most self-employed people’s income tend to fluctuate. These borrowers usually have cash reserves set aside to compensate for months where their income is low. Even with a huge cash reserve, self-employed individuals may still have a difficult time in getting a loan approved.
No-doc or low-doc loans not allowed. Lenders are required to submit and verify borrowers’ complete financial information
Lower fees. Origination fees should not go beyond 3% for a loan of more than $100,000.
No risky loans. No interest-only payments, no negative amortization payments where principal increases, and terms should not exceed 30 years.
Contact within 36 days of missed payments. Lenders should contact borrowers within 36 days of a missed payment. Lenders must also provide available payment options not later than 45 days after the due date.
Clearer monthly billing statements. Lenders must provide clear monthly statements indicating the amount of your payment that went to escrow and principal, balance owed, and service or transactional fees.
Early warning for ARM: Lenders must notify borrowers of increased rates 210-240 days before the next payment and follow up with an additional notice 60-120 days before the new payment is due.
The lender’s incentives in following these guidelines are huge. If mortgage loans fail to meet the QM, the lender can hold the loan instead of selling it to Fannie Mae or Freddie Mac.
The QM requirements may have lower loan limits for conventional conforming loans. The Federal Housing Finance Agency (which regulated Fannie Mae and Freddie Mac) will delay its normal adjustment of loan limits from 1 January 2013 to sometime later this year, after seeing what kind of impact the new QM guidelines will have on the housing industry. The current limits for most housing markets are $417,000 or as much as $625,000 in high-cost areas. These figures will change later this year.
Getting a smaller loan will be more difficult under the new QM requirements since origination fees will be limited to no more than 3% of the loan amount. This means lenders are less likely to offer smaller loans since they may not be able to recover their costs and make a profit with the smaller origination fees.
Florida short sale home buyers could expect to see these changes in the mortgage loan approval process this year and more changes later in the year.
The process involved in a short sale can be very demanding and here are some helpful tips for Florida short sale sellers to prepare you along the way.
Short sales can be very helpful; however, it can lead to critical consequences when not properly done. Let us walk you through the process, give you all the information you need, and provide you with all the necessary tools with our Florida short sale services.
Call Katerina Gasset at (561) 502-1577 today to get your Florida short sale question answered.