When Should You Move Out During a Short Sale?
Many short sale sellers are concerned about their ability to rent a home after closing the short sale. They tend to think a property management company will disqualify them due to bad credit. Their thinking is if they rent a home before doing a short sale, their credit will still be optimal.
A short sale is not the big red flag it used to be. It's not like a Scarlet Letter hanging around your neck. Short sales are so commonplace that almost everybody knows somebody who has done a short sale. They are not a horrible thing like a foreclosure. Doing a short sale means taking responsibility, and most people who rent homes prefer to rent to responsible tenants.
If the only derogatory mark on your credit report was caused by a short sale, that derogatory credit is explainable. And remember, after 2 years, most credit is re-established to the point that sellers can qualify for a Fannie Mae loan to buy another home.
Reasons to Occupy Your Home During a Short Sale
My advice to sellers is to stay put during the short sale. Don't move. Although you may be eager to get on with your life, turn the next page and put all of this behind you, there are good reasons to stay in your home.
- Vacant homes are often vandalized. Just because you are short selling doesn't mean you are not responsible for your home. You are responsible for your home all the way to the day it closes. That means if someone breaks in to rip out the copper plumbing and floods the place, that loss is your loss. Moreover, bear in mind that many homes are not insured after 30 days of vacancy. Check your homeowner insurance policy. Purchasing vacant home insurance is expensive.
- Vacant homes still require maintenance. You can't let the lawn die or stop mowing the lawn. If neighbors call a government entity to complain and that entity steps in to take care of your lawn, that entity will most likely file a lien. A lien that your bank will most likely refuse to allow you to pay, and then the home could go to foreclosure. It's easier to care for the home if you are still living there.
- You're living rent-free. If you have stopped making mortgage payments, it's not costing you anything to stay in the home. You may as well stay there as long as you can and continue to save for a security deposit and first/last month's rent.
- Some banks require occupancy. The last thing you need to hear is your short sale was declined because you moved out. We've had short sales rejected by banks because the home was vacant and the investor guidelines required occupancy. Don't think you can just say you live there when you don't because banks will ask for a copy of your cable bill.
- Your home shows better with furniture. There is only so much a short sale agent can do to shoot a photograph of an empty bedroom. A corner with a window is the most unappealing shot. Your home will sell faster and attract more committed buyers if you do not move out.
When you move out will depend on when you expect to get the short sale approval letter. I suggest sellers wait until the approval letter is received and for some, longer than that. Many banks will give you 30 to 45 days to move. If it's only 30 days, you may need to act swiftly. Many rentals are available on the first of the month, so the closer you get to the first of the month, the fewer rental homes you may find.
Moreover, if the purchase offer contains a contingency, the buyer might still cancel. To be really cautious, you might want to wait until all of the contract contingencies are removed. Otherwise, you could find yourself moving out only to turn around and have to move back in. Your short sale agent should be able to guide you.