Short Sale V Foreclosure

February 20, 2012

Financial Info, Real Estate Info

This has become a common topic these days. People are practically wondering whether to go for a short sale or a foreclosure when it comes to the sale of a house. The problem is that this comes when you are in financial difficulty. The process can prove difficult. But you need to understand and give a distinction between the two in order to make a proper decision.

Short selling is a process that involves three major parties: the lender, seller and buyer of the house. A short occurs when the lender of a mortgage sells the house a price relatively lower than the market value of the house at the time of the sale. On the other hand, foreclosure is a legal process where the lender attempts to recover the balance of a loan from a borrower that has stopped making payments by selling the asset of the borrower that was used as collateral for the loan.

In underscoring a short sale v a foreclosure, you need to take the view point of a lender, seller or buyer. However, we shall look at it in more general terms:

Effect On Credit Score- your credit score after a short sale basically depends on the report given to the credit reporting agencies. In most cases, it doesn’t affect your credit score. However, it can be slightly affected by just a few points depending on the report given. On the other hand, a foreclosure affects up to 300 points of your credit score.

Waiting Period Before Taking Another Mortgage- in the case of a short sale, one has to wait for up to just two so that they can apply for another mortgage loan at a very reasonable interest rate. This is not the same case with a foreclosure where one has to wait for a period of between 3 to 7 years in order to apply for another mortgage. The exact period is determined by circumstances such as illness, death, an accident that may result in severe injury or a job transfer.

Payments during the Process- a number of payments take about 3 to 12 months clear. You may cease to make any payments for the house such as rent or mortgage loan during the short sale process as you continue to live in the same house. This can allow you to solve your financial problems in the short run. However, this is not the case with a foreclosure where you have to make all the payments as the process goes on.

Qualification for some Closing Incentives- you may qualify for some incentives from the lenders and the government of up to $35,000 as a closing balance in both a short sale and a foreclosure. This money could help you a lot to move and relocate.

Generally, a short sale has fewer damaging effects than a foreclosure. A short sale also seems to harbor a number of advantages for all the parties involved while it is more disadvantageous to the seller in the case of a foreclosure.

Overall, it is better to find out the agreement of the parties involved. There are other cases where the lender may decide against a foreclosure.

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