Is a Short Sale Right for You?

The number of homeowners selling their home for less than the outstanding mortgage, known as short sales, is growing, according to government data. But it is still not an easy process. Here are a few things borrowers should consider when pursuing a short sale of their property:

1. Explore other options. Could you qualify for a loan modification that would make your home affordable? Your lender may be willing to lower the interest rate or extend the length of the loan to lower the payments.

2. Determine the current market value of your home and compare it to the outstanding balance on your mortgage. A real estate agent can help you determine market value, but homeowners can also look up recent sales in their neighborhood on the Internet.

3. A real estate agent with experience in short sales can be helpful in navigating the process.

4. Assemble your financial documents -- tax returns, pay stubs, bank statements. Lenders want to look at those documents as well as a hardship letter before approving a short sale.

5. Be patient. While some real estate agents say it is getting better, short sales are still a lengthy process and many deals fall apart.

6. Check to see if you are eligible for the $1,500 in assistance the Obama administration is making available to some sellers who participate in a short sale. That may help cover your moving costs.

7. Check with an accountant about tax implications. On investment or vacation homes, the difference between the sale price and the outstanding mortgage can be considered a taxable gift. This Internal Revenue Service page has more information: http://www.irs.gov/individuals/article/0,,id=179414,00.html.