How a Short Sale Works and When to Consider One?

If you're feeling underwater on your mortgage, you're not alone. Homeowners across the country face tough choices when home values dip or personal finances change.

Heads up: a short sale might offer a way out, without the devastating impact of foreclosure.

This guide will walk you through everything you need to know about short sales-from how they work to when they make the most sense. Plus, you'll learn how reAlpha Mortgage can simplify the process and protect your interests-offering smarter ways to save while navigating tough decisions like a short sale.

A short sale allows you to sell your home for less than you owe, with lender approval, potentially protecting your credit and your future.

• Understand what a short sale is and how it differs from foreclosure.
• Know when a short sale might be the right move.
• Learn the step-by-step short sale process.
• Discover key tips for getting lender approval.
• Explore important legal, tax, and credit implications.

A short sale happens when you sell your home for less than the remaining balance on your mortgage. The lender agrees to accept less than what's owed to avoid the foreclosure process.

Get Pre-Qualified and Save Up to 1.5% at Closing with reAlpha

Save up to 1.5% at closing when you combine real estate and mortgage services with reAlpha.

Check if you qualify

• You must prove financial hardship (e.g., job loss, divorce, medical bills).
• The lender must approve the short sale before listing or selling the property.
• Not every homeowner qualifies.

Pro Tip: Think of it as a "less bad" option compared to foreclosure, but not a risk-free one.

Short sales aren't right for everyone. Here's when it might make sense:

• You're behind on mortgage payments and can't catch up.
• Your home's market value has dropped significantly.
• You’ve experienced a major life event impacting your finances.
• You want to minimize long-term credit damage compared to foreclosure.

Remember: Short sales can still impact your credit score, but usually less than a foreclosure would.

• Talk to a real estate professional experienced in short sales.
• Gather financial documents (pay stubs, tax returns, hardship letter).

• Submit a short sale application.
• Wait for lender review (this can take weeks or months).

• Market your home competitively.
• Accept a reasonable offer contingent on lender approval.

• Lender issues approval.
• Buyer closes on the property.
• Sale proceeds go to the lender.

Heads up: Lenders sometimes reserve the right to pursue a deficiency judgment (the remaining balance you still owe).

Short sales come with real consequences you need to know about:

• Tax consequences: Forgiven debt might be considered taxable income. (Check with a tax professional.)
• Credit impact: Expect a 50-160 point drop on your credit score.
• Deficiency balances: Some states allow lenders to pursue borrowers for the remaining debt.

Consult legal and tax advisors to fully understand your exposure before committing.

Buying a Home? Get up to 1.5% Cash Back at Closing

Get pre-approval first, then start exploring homes knowing you can receive up to 1.5% of the home price back at closing.

Find your dream home

• According to a report by ATTOM, short sales accounted for less than 1% of all home sales in 2023, but they still play a critical role for distressed homeowners.
• Real estate agents on Reddit emphasize the importance of hiring an agent who knows the nuances of short sales versus traditional sales.

Buying a home is a big decision - and having the right information puts you ahead. But the real advantage comes from pairing smart research with a smarter way to buy.

When you use a reAlpha real estate company, you can be eligible to receive up to 1% of the home purchase price back as a credit at closing. Add reAlpha Mortgage, and that rebate can increase to up to 1.5% back, helping offset closing costs and keep more money in your pocket when it matters most.

The rebate is simple, transparent, and applied directly at closing - no complicated hoops, no delayed payouts. Just real savings tied to using a fully integrated homebuying experience.

See how much you could save:

• Check your eligibility

• Explore homes that fit your budget today.

• Your next move could come with thousands back at closing.

• Estimate your savings → Rebate Calculator

Need help navigating a short sale or planning your comeback? Let’s make it smarter-explore your savings now with reAlpha Mortgage.

Disclosure: reAlpha Mortgage, NMLS #1743790. This content is for informational purposes only and not intended as legal or tax advice. Always consult with a licensed attorney or tax professional for your specific situation.