More and more homeowners who are underwater in their mortgages are opting for short sales in lieu of a foreclosure. Many realize that a short sale does less damage to your credit than a foreclosure, and even lenders realize the value. The lenders lose 50% on a foreclosure and only 30% on a short sale. If you’re choosing to do a short sale, here are five essential steps to help with the process.

Locate your lender: Once you’ve decided to opt for a short sale, you should contact your lender immediately. Depending on your lender some are willing to work with you by reducing the amount owed. Some will tell you the debt is yours alone. Either way, the lender should be notified before you take the next step.

Utilize your resources: Lenders have been presenting more incentives to offer troubled borrowers short sales to avoid foreclosing. In fact, under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 relocation incentive. Take advantage of the programs you qualify for to help save costs.

How much is it worth?: Before the short sale process can truly begin, you have to find out the value of the property. Property value can be determined through either a market analysis of the area your property is in or through a real estate broker.

Determine total costs: Short sale costs can add up so estimate your costs. First determine the amount owed against the property, which should be a total of all the loans against the property. Then subtract the total amount owing against the property from the estimated sale proceeds. Secondly, determine the costs of selling. If selling yourself, consult a title company.

Go for broke, find a broker: If you don’t want to sell the house yourself, you can always invest in a good broker who will sell off the property in the market. Even though the broker will charge you a commission, for some the cost is worth the time they save doing the short sale on their own.

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