Yes, you can do a short sale with mortgage insurance on your loan. Mortgage insurance is insuring the lender against the losses that may happen when a short sale is needed to prevent a foreclosure. Short sale can be said as one of the options to avoid foreclosure. When a borrower has defaulted on the mortgage payments, he can contact his lender and apply for a short sale. But short sale hurts your credit too and thus it would be better for you to try and get a refinance mortgage much before you default on your mortgage. Try to find out if you can get a bad credit mortgage refinance loan in order to change the terms and conditions of your home loan.
If the lender is convinced about the borrower?s financial problem, and refused bad credit mortgage refinance, he will be more prone to accept the request and sell off the property at a lower price than what the borrower owes on the property. In order to short sale the property, the borrower will have to list it in the market for at least 3 months.
While negotiating with a lender for a short sale, the approval or denial of the short sale depends on the property?s value. When a homeowner makes a default in the loan, the lender has two options before him. He may either foreclose the house [by taking the house as a real estate owned property] or he may agree to a short sale and let it be sold what the short sale market can afford. The amount of money the buyer has to pay in these situations has nothing to do with the amount that is owed on the property.
Thus, the lenders are able to get the short sale offer in their house. Once a value is made fixed, the lender either accepts or rejects the value or the lender suggests a counter-offer for the short sale.
When you have private mortgage insurance on your loan amount, you obtain it as the part of your loan amount because you can put less than 20% as a down payment, when you purchased the property. As such, the premium is being paid for you that also include your monthly payment. The coverage ratio is included in the insurance policy. This means that the mortgage insurance company will cover the loss percentage that may be laid upon by the lender in case you make a default on your mortgage payments.
Suppose you owe $100,000 on your loan amount and you have mortgage insurance for the home loan. Now because of your financial problems arising primarily due to long unemployment, the prevailing real estate market, and being rejected for a bad credit mortgage refinance, you are forced to decide in favor of a short sale of your home. You know that the property is worth $70,000. However, you get an offer to settle it for $50,000. But the lender made a counter offer of $55,000 in order to let it work. The buyer agrees to accept the offer and the bank accepts the amount. Remember, since you have mortgage insurance, the lender will be able to claim about $20,000 (nearly 20%) from the mortgage insurance company. Thus, when you close the transaction, not only you suffered a big loss, but the lender also ended up losing about $25,000.
It is the mortgage insurance company who is responsible for paying the claim amount to the lender. Since these companies are paying the lenders their claims, they call it as shorts. The mortgage insurance companies will check your credit score, retirement accounts, cash reserve accounts, and find out whether or not you?re regular in paying your other bills and just avoiding your mortgage payments by checking your cash flow.
The mortgage insurance companies go through the premium of a claim of loss in order to let you avoid foreclosure. They also instruct the lender to keep the required cash so as to approve the transaction. In case you cannot pay at this moment, they can observe your situation for few years and in future demand for the payment of their losses. Though this does not happen very often, there are many mortgage insurance companies who had to leave their business due to the claims for the last few years resulting in foreclosure and the companies those, are still present and are looking for every penny.
Source: http://realestateutah.com/can-i-do-a-short-sale-with-mortgage-insurance-on-my-loan/
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