Why a Short Sale is Better than Foreclosure
If you are one of the unlucky ones underwater on your home and are behind on your mortgage payments, you do have options! Foreclosure is not the only choice, nor is it the best. In many cases, a Short Sale will work better for you and your lender. It is important to understand the effects of losing your home to a foreclosure or selling it through a short sale. There are stark differences to how your credit, your borrowing capability, and your general outlook on the future will be affected by your decision. Below is a table to help break down the difference of how a foreclosure and a short sale will affect you.
| Issue | Foreclosure | Successful Short Sale | ||
| Credit Score & History | Foreclosures can affect your credit score by lowering it 175 to 300 points for up to 7 to 10 years. | Not public records. Shows Late payments – Mortgage “settled for less than full amount due”. Credit score may only be affected by 50 to 100 points. | ||
| Future Home Purchase (Primary Residence – Fannie Mae Loan) | Per Fannie Mae, individuals losing a home to foreclosure will not be eligible for a Fannie Mae loan for a time period of 5 years. | Per Fannie Mae, if an individual completes a short sale they will be able to purchase a home after 2 years (depending on credit score). | ||
| Future Loan with any Mortgage Company | Borrower will have to answer YES to the question “have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” | There is no question related to short sales currently on a loan application. | ||
| Amount of the Deficiency Judgment | Final sales price is usually lower than in a short sale. If lender has deficiency rights, this can result in a higher amount that they will be able to pursue. | The sales price in a short sale is typically higher potentially resulting in a smaller deficiency judgment, and possible waiver of deficiency. | ||
| Future Employment | Could impact employment opportunities. | Shows employer that the future employee worked with the lender towards a resolution. | ||
| Security Clearances | Foreclosure can be a challenging issue against a security clearance. | A short sale by itself does not challenge most security clearances. |
For more detail go to www.rayonrealestate.com
Ray Princiotta is a licensed Florida real estate broker with Accelerated Realty, Inc. Contact him at 305.494.4101 or ray@rayonrealestate.com
When trying to decide whether a short sale is right for you don’t be fooled into making the decision under false hopes that your credit will not be impacted all that much. The biggest advantage in a short sale is the shortened time frame in which you will be able to purchase a home in the future.