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Short sale when you have home equity loan

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Short Sale When You Have a Home Equity Loan: A Comprehensive Review

For homeowners facing financial difficulties, a short sale can be an attractive option to avoid foreclosure. However, if you have a home equity loan, navigating the short sale process can be more complex. In this expert review, we will delve into the intricacies of short sales when you have a home equity loan in the United States. We will provide valuable information, tips, and insights to help you make an informed decision. So let's dive in.

Understanding Short Sales:

A short sale occurs when a homeowner sells their property for less than the outstanding balance on their mortgage. This option allows homeowners to avoid foreclosure and alleviate their financial burdens. However, when a home equity loan is involved, things can get more complicated.

Home Equity Loan and Short Sale:

When you have a home equity loan, the lender who provided the loan also holds a stake in your property. This means that even if the primary mortgage lender agrees to a short sale, the home equity lender must also approve the sale and negotiate the terms. This additional layer of approval can prolong the short sale process.

Communicate with Lenders:

Open and transparent communication with both your primary mortgage lender and home equity lender is crucial. Inform them about your financial

In most cases, the money you receive from selling your house will be used to repay your home equity loan, and so you will no longer have to make payments after the sale.

Will a short sale affect my loan eligibility?

Since short sales damage your credit score, pursuing a home loan after a short sale may be a lengthy process. If you want to buy a home in the future, you'll need to repair your credit to be eligible for the best interest rates and loan programs possible.

What is the downside of a short sale on a home?

For a short sale to close, everyone who is owed money must agree to take less, or possibly no money at all. That makes short sales complex transactions that move slowly and often fall through. If you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure.

Can a home equity loan be foreclosed on?

Some borrowers stop paying their HELOC while continuing to pay their primary mortgage. In this case, the HELOC lender may decide to force foreclosure. Primary mortgage lender may receive the lion's share of the foreclosure money.

Do you have to pay off a home equity loan before selling?

Can you sell your house if you have a home equity loan? You don't have to pay off your home equity loan or other liens to list your home for sale. At the sale's closing, creditors holding liens on your home's title will be paid off from the proceeds of the sale.

How long after a short sale can I refinance?

Three-Year Waiting Period

If you were in default on the old mortgage loan at the time of the short sale, then you usually must wait at least three years before applying for another FHA-insured loan.

Do you have to wait 2 years to refinance?

Conventional loans

You can refinance a conventional loan as soon as you'd like for a rate-and-term refinance, if there's a financial benefit. If you want a cash-out refinance, conventional lenders require a six-month waiting period.

Frequently Asked Questions

What is the short sale rule?

The Short Sale Rule is an SEC rule that governs when and how stocks can be sold short. Briefly, the rule dictates that once a stock falls more than 10% from its previous close, that stock cannot be shorted at the bid price for the remainder of the current trading session or for the entirety of the next session.

How long does a short sale stay on your credit?

Seven years

Short sales, like foreclosures, can remain on your credit report for as long as seven years. The silver lining with short sales is that your score is likely to begin improving more quickly, usually in about two years.

What are the rules for FHA loan after short sale?

Yes, you can get another FHA loan after you sell your house, even if it was through a Short Sale. FHA requires that at least three years have passed from the date of the short sale before getting a new mortgage. Under certain extenuating circumstances, it is possible to buy in less than three years.


How do I get a short sale off my credit report?
You cannot remove a short sale from your credit report unless the information listed is incorrect. If the entry is an error, you can file a dispute with the three major credit bureaus to have it removed, but the information will remain on your report for seven years if it is accurate.

What is the waiting period after a short sale?

Minimum waiting period to get a mortgage after a short sale

Loan typeMinimum waiting period
Conventional2-4 years with exceptions
FHA3 years with exceptions
USDA3 years
VA2 years with exceptions
How does a short sale work in Florida?

In a short sale, the homeowner and mortgage company agree to sell the home for less than the amount owed on the mortgage. Short sales may be a good option for homeowners who have no equity in the property and want to abandon the home without going through the foreclosure process.

Short sale when you have home equity loan

How long does a short sale take in Florida?

Florida short sales can go through as quickly as 60 days, but more typically take up to six months.

Can a bank come after you after a short sale? Your Lender May Not Sue You for a Deficiency Judgment After a Short Sale. After the short sale is completed, your lender might call you or send letters stating that you still owe money. These letters could come from an attorney's office or a collection agency and will demand that you pay off the deficiency.

Do you still owe money after a short sale?

In California, lender's approval of a short sale is a release of the remaining amount of the loan. California is one of only a few states that prohibits deficiency judgments on an approved short sale, including junior lienholders who agreed to the sale.

  • What is the waiting period for a FHA loan after a short sale?
    • Eligibility for an FHA Loan after a Short Sale

      The 3-year waiting period starts from the date of the short sale, or if the prior mortgage was also an FHA-insured loan, from the date that FHA paid the claim on the short sale.

  • How much does a short sale hurt your credit?
    • If your score is in the 750-800 range, it could easily drop 150 points in a short sale, maybe even more. If you have an average or even good credit score (something in the 650-720 range), you could lose 100 points after a short sale and fall into what lenders call “subprime” category.

  • Is there a time limit on short sales?
    • There is no set time that an investor can hold a short position. The key requirement, however, is that the broker is willing to loan the stock for shorting. Investors can hold short positions as long as they are able to honor the margin requirements.

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