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Short sale vs foreclosure: which is better for you

If you are behind on your mortgage payments and face foreclosure on your property, you may be comparing a short sale vs. foreclosure. Both damage your credit, yet a foreclosure does more harm.

Short sale vs foreclosureIf you are behind on your mortgage payments and face foreclosure on your property, you may be comparing a short sale vs. foreclosure. Both can lower your credit rating, but a short sale will have less negative impact than a foreclosure. This is because a short sale may not be on your credit history as long as a foreclosure, which can show up for 10 years.

It's important to understand the differences between a short sale and foreclosure so you can decide which would be the best choice for your situation. A short sale is when you sell your home in pre-foreclosure for an amount less than you owe on the mortgage. Your lender must agree to the short sale and approve the buyer's offer. While a short sale stops foreclosure, it may not be the best choice for you. Your lender may ask you to pay the deficiency balance, which is the difference between your mortgage principal and sale price. The remaining balance may have to be paid in installments until the entire amount owed has been covered. However, if you do a short sale through the federal Making Home Affordable Program, your lender has to waive deficiency balance.

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A foreclosure occurs when your bank or other lender files a Notice of Default (NOD) because you are behind on your mortgage payments. Depending on the state you live in, your lender may start foreclosure in days or months after you miss a payment. You have a specific amount of time to pay the past due amount in full or your lender will sell your home.

When comparing a short sale vs. foreclosure, the key difference is that you will have a more difficult time getting a mortgage loan after foreclosure, than after a short sale. Typically, three years after your short sale, you will be eligible for a government-backed home loan.

When a lender agrees to a short sale, it's avoiding the hassle and fees of foreclosing the property and reselling it. With foreclosures, you essentially walk away from your home and mortgage, but suffer a huge negative hit on your credit for doing so.

If you cannot pay your mortgage, it's best to compare a short sale vs. foreclosure before deciding on which path to take. While walking away may seem the only way out, a short sale is a viable option. If you need a real estate agent who specializes in short sales, go to Reply! to connect with professionals near you.

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