A short sale can help homeowners avoid foreclosure by selling their home for less than they owe on the mortgage. Because the lender must approve the sale, it’s generally used only when other mortgage relief options aren’t available.
How a short sale works for the seller
As the homeowner, you'll need your lender's approval to do a short sale. You may be eligible if you:
- Recently experienced a financial hardship.
- Owe more than the home is worth and can no longer afford the mortgage.
- Applied for a loan modification but didn't qualify, or can't do a loan modification for some other reason, such as the need to relocate for a job.
Contact your lender or mortgage servicer as soon as possible if you think you might have trouble paying your mortgage. You may qualify for mortgage assistance, which could help you avoid a short sale.
If you don't qualify, then you may apply to do a short sale, but be prepared to provide financial documents, such as pay stubs and tax returns.
If your short sale is approved, work with a real estate agent who has experience with short sales. The agent will help you market the property and guide you through the process with the lender.
🤓Nerdy Tip
In some states, sellers are responsible for paying the difference between the sales price and the mortgage balance after a short sale closes. In that case, you can ask the lender to "waive the deficiency" before proceeding with the short sale. Get the waiver in writing, advises the Consumer Financial Protection Bureau.Short sale vs. foreclosure
Short sale | Foreclosure | |
|---|---|---|
Who initiates? | Homeowner (with servicer approval) | Lender after missed payments |
Control | Homeowner has more control over timing and move-out | Lender controls the process |
Credit impact | Typically less severe | Typically more severe |
Qualify for a mortgage again | Often sooner | Usually a longer waiting period |
There's also a financial benefit to consider. Both short sales and foreclosures typically sell for less than a home's market value, but short sales generally bring in a higher price.
A 2026 analysis by Realtor.com found that short sales sold for about 9% more of their estimated market value than foreclosures. On a $300,000 home, that could mean keeping an extra $15,000 to $30,000 in value.
Did you know...
You may qualify for paid moving expenses when completing a short sale.Homeowner alternatives to a short sale
Consider other options before a short sale if you think you might not be able to pay your mortgage.
- A traditional home sale may still be possible if you owe less than what your home is worth.
- Mortgage forbearance lets you make lower payments or no payments at all for a certain period of time when you're experiencing a financial hardship.
- A loan modification changes the terms of your mortgage so the payments are more affordable.
Need assistance sorting through the options? A housing counselor approved by the U.S. Department of Housing and Urban Development can help.
Be prepared to share your last mortgage statement and other financial documents, such as recent bank statements, credit card bills, tax returns and pay stubs. You can search for a counselor through the HUD website.
🤓Nerdy Tip
Watch out for mortgage relief scams. Beware of companies that promise mortgage relief for an upfront fee or that discourage you from contacting your lender, attorney or a government-approved housing counselor.How a short sale works for a buyer
Short sales are more complicated than traditional home sales because more stakeholders are involved in the process. In addition to the homeowner and buyer and their real estate agents, stakeholders include the mortgage servicer and the "investor" — the company that owns the mortgage. (Lenders often sell home loans to other banks or entities, such as Fannie Mae or Freddie Mac.)
And in some instances, the transaction may involve other lenders holding second mortgages, such as home equity loans on the property, as well as a private mortgage insurance company or a homeowners association that is owed money.
Here are the general steps for buying a short sale home:
- Get preapproved for a mortgage before you start shopping. A mortgage preapproval will show the seller's lender that you have the ability to buy the home. Or be prepared to show proof that you have the money if you're buying with cash.
- Choose a real estate agent with experience in short sale transactions. The agent will identify homes listed for short sale and guide you through the process.
- Work with your agent to submit an offer on a home. The lender may accept, decline or send a counteroffer.
- Respond to the counteroffer, if applicable.
- Close the deal. Work with your real estate agent to follow all the instructions to closing.
Did you know...
Short sales are still rare, but they’re becoming more common. In 2025, short sales accounted for about 0.6% of all home sales and 28% of distressed sales, according to a 2026 analysis from Realtor.com. The number of short sales rose 4% from 2023 to 2024, nearly 10% from 2024 to 2025, and about 16% in the first quarter of 2026 compared with the same period a year earlier.Buying a short sale home: Pros and cons
Buying a short sale property isn't for everybody. Weigh the pros and cons of short sale transactions before you start shopping.
Pros
- Some buyers aren’t interested in short sales due to their complexities, so you might face less competition when making offers.
- Short sale homes tend to be priced below market value in an effort to attract buyers.
Cons
- Short sales are more complicated than traditional home sales because they can involve multiple parties, legal challenges and significant repairs.
- The transactions usually take longer to complete than traditional sales. Short sales typically take three to six months, compared with 30 to 45 days for a traditional home sale.
- The lender must approve the price, so your offer may not be accepted even if the homeowner likes it.
Frequently Asked Questions
Will a short sale hurt my credit?
Yes, a short sale will have a negative impact on your credit score. Generally the impact will be more noticeable if you had excellent credit before the short sale, according to the Fair Isaac Corp., which created the FICO score.
Short sales are reported to the major credit reporting agencies as a loan completed for less than the amount owed. That information will remain on your credit report for seven years, but the negative effect on your credit score will decrease during that time.
Credit scoring models generally give greater weight to your handling of credit in the most recent years, according to Equifax, one of the three major credit-reporting bureaus.
Will I owe money after the short sale?
In some states you could owe the difference between the mortgage balance and the selling price after the short sale closes. You can avoid this by asking for a "waiver of deficiency" from the lender before the sale goes through.
Who determines the home sale price?
The mortgage servicer, the company that sends you mortgage statements and manages your loan, will be involved in the transaction. But the "investor," the bank or entity that currently owns the mortgage, has the final say on the price and other terms for the sale. Common investors are the government-sponsored entities Fannie Mae or Freddie Mac.
When can I get a mortgage after a short sale?
You'll need to wait for a bit before you can qualify for a mortgage. Conventional loans typically require a four-year waiting period (or two years with documented extenuating circumstances, such as a job loss or serious illness). USDA loans generally require three years and VA loans typically require two years. FHA loans usually require three years as well, but if you didn't miss any mortgage or debt payments in the 12 months before the short sale you may qualify immediately with no waiting period.
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