A short sale is an agreement between a mortgagor and a lender to allow for settlement of the property for less than the principal amount due, or “selling short” of the balance. The requirements for this kind of transaction vary from one underwriting entity to another, and the short-sale requirements for Fannie Mae loans are less rigorous than comparable short sales with FHA or VA underwriters.
Proof of Income
The homeowner’s loss of income must be verified by FHA and VA, but because Fannie Mae underwriters want to streamline the short-sale process, they may accept a budget letter in lieu of bank statements and pay stubs. A budget letter is a simple statement that outlines a borrower’s income and monthly expenses.
While VA and FHA loans require a detailed letter about the hardship that’s the reason for default, Fannie Mae requires only that a reason for default be listed. Examples of this include loss of income, reduction of income, divorce, separation or medical disability.
An appraisal helps determine the sale price of the property; this can be paid for by either the buyer or the homeowner. Because Fannie Mae underwrites conventional loans primarily for the private sector, appraisals are streamlined and easy compared with FHA or VA appraisals, which can take a long time and don’t typically reflect as high of a sales price because of stringent underwriting guidelines.
Buyers must meet the guidelines for qualification, which are proof of income, acceptable debt ratios and good credit history.
There is no stipulation on property occupancy. The property can be vacant, owner occupied or occupied by rental tenants. If the property is occupied when the sale occurs, the residents must move out before the closing occurs.
Fees and Liens
Pre-foreclosure fees are absorbed by the lender, and outstanding liens must be cleared up by the homeowner to convey clear title to the buyer.
Once all property sale documents and applicable addenda have been verified and received by Fannie Mae, an approval for short sale will be issued and a contract for closing will be executed. This process can take up to two weeks; after that, Fannie Mae will issue a clear-to-close document on the property.