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. So they often try to rent a home before doing a short sale, so their credit will still be in good shape.
A short sale is not the big red flag it used to be, though. It's not like a scarlet letter hanging around your neck. Nowadays, short sales are so commonplace that almost everybody knows somebody who has done one. They don't have the same stigma as 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 two years, most credit is reestablished 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
There's no reason to rush to get out of your home before a short sale. It's often better to stay put until the process is complete. 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 homeowners 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. Your bank will most likely refuse to allow you to pay that lien, and then the home could go to foreclosure. It's easier to care for the home if you are still living there.
You May Be 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 and last month's rent.
Be sure you understand the risks if you stop making payments. Should your short sale fall through, you could be on the hook for those payments and risk going into foreclosure.
Some Banks Require Occupancy
The last thing you need to hear is your short sale was declined because you moved out. Banks can reject short sales 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, either—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 to Move
When you move out will depend on when you expect to get the short sale approval letter. It's always best to wait until you receive the approval letter—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 through the process.
FTC. "Getting a Mortgage after a Short Sale." Accessed March 26, 2020.
Insurance Information Institute. "A Vacant Home Still Needs Insurance— Don't Be Caught Without Coverage." Accessed March 26, 2020.