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The Difference Between Foreclosure And A Short Sale

· Foreclosure,Short Sale,Realty

However hard you work to make your home payments, life can sometimes get in the way. Big changes in your world can mean big changes in your budget, and countless homeowners this year will find themselves in situations where holding onto their home is just not possible.

Solutions can be tough to find. While mortgage stress can seem overwhelming, two options often rise to the top: “foreclosure” and “short sale.” Any homeowner struggling to make their payments should understand how these two processes work.

Foreclosure and short sales can seem similar. They are both options for homeowners who:

· Owe more money to their lender than their home is worth

· Can no longer afford to make payments on their loans.

However, there are also some big differences. Let’s break it down.

What Is a Short Sale?

In a short sale, a homeowner sells their home themselves. They use the money from the sale to repay the mortgage lender. However, in a short sale, the money from the sale does not cover the whole mortgage balance – it falls “short.”

The remaining balance on the loan is called a deficiency. In some states, the law prevents a lender from trying to collect on a deficiency once the sale has gone through. In others, it may be up to the lender whether to try to collect it.

The lender has to approve a short sale. Because lenders don’t get all their money back from a short sale, they won’t usually approve them without a good reason. However, if approved by the lender, a short sale home will go on the property market. Any offer to buy the house will likely also have to be approved by the lender.

What is a foreclosure?

A foreclosure is initiated by the lender and is the result of a borrower missing several mortgage payments. In foreclosure, the lender, not the homeowner, takes over the property and sells the house.

When a borrower misses enough payments, a lender can try to repossess the property, usually by going to court. From there, the people living in the house may be required to vacate the premises and the home typically goes to auction.

Is One Option Better Than the Other?

While some experts suggest that future lenders may look upon short sales with more leniency than foreclosures, both options have the potential to hurt your credit score significantly. According to Web real estate database Zillow, foreclosure will likely cause a bigger credit hit than a short sale, since foreclosure is the result of several late payments. In contrast, a short sale can be initiated even as the homeowner pays their monthly bills.

Perhaps the biggest difference between these two options is how they impact your financial future. The fallout from a foreclosure tends to be more far-reaching than that of a short sale, leaving homeowners with a black mark on their credit history and placing them in a 3-to-7 year waiting period for a new mortgage (perhaps even longer).

Short sales, in contrast, tend to come with shorter waiting periods for new mortgages. In some cases there may be no waiting period at all. So, while both options may put the brakes on getting a new mortgage right away, the impact of a short sale tends to be less severe.

Both can take a long time. Foreclosure proceedings can drag on for a year or more, and short sales can require months of work and communication on the homeowner’s part. Either option can be a serious burden as you try to secure a new place to live and adjust to the changes that come with leaving a home.

Ask4Offer can make you a cash offer on your home in 24-72 hours or less and we can close in a little as one week after the offer has been accepted. No pre-approval needed.

Fill out our online assessment now or call 833-3-4OFFER to get your home sold quickly.

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