Many buyers and sellers in today's market are seeing and hearing the words short sale and foreclosure. What is the difference between the two? How does it affect the borrower? And which is the better option?
A short sale occurs when the creditor agrees to accept less than the total amount due of an owner's property, and the owner puts the house up for sale to settle the obligation even if the proceeds are less than the due amount. While foreclosure takes place, when the creditors take possession of the property because of non-payment for a long period of time or an unapproved short sale. In this case, the house goes back to the creditor and they will arrange for the property to be sold or to be auctioned off to pay for the due amount.
Both options affect the borrower's credit score. A borrower's credit score could drop by as much as 300 points. If the initial credit score is 700, expect the credit score to drop to 400 points.
Another effect of both options is that the borrower will not be able to obtain a new mortgage right away. In foreclosure, the borrower won't be able to buy another home through mortgage until after six to seven years. While a seller who sold his/her home through a short sale will likely be able to buy another home in two years. In essence, if a seller decides to sell his/her property through short sale, it will take him/her a shorter time to obtain a new mortgage as compared to foreclosing his/her previous home.
Once a borrower falls behind on his/her mortgage payments, he may want to consider doing a short sale vs foreclosure. First, it can help him save their credit history and future purchasing power; Second, it is a way out of a difficult situation both financially and socially; Third, it could reduce the stress of finding funds to answer a certain financial obligation; Fourth, it is realistic alternative to a mortgage foreclosure process.
Short sales actually benefit all parties involved. Through it, the lender gets the money owed from the sale of the property and the homeowner can walk away from the property he couldn't pay for anymore. The buyer ends up buying a good property at a discounted price.
If the borrower couldn't keep up with the monthly mortgage payments anymore, it is important to check with the lender if there are other options one could take to avoid losing their home. But if it's inevitable, consider short sale. Avoid foreclosure at all cost! Hire an experienced Realtor in this situation. He would know who to talk to, when to talk to them and how to handle all the paperwork to get the deal done.
A short sale occurs when the creditor agrees to accept less than the total amount due of an owner's property, and the owner puts the house up for sale to settle the obligation even if the proceeds are less than the due amount. While foreclosure takes place, when the creditors take possession of the property because of non-payment for a long period of time or an unapproved short sale. In this case, the house goes back to the creditor and they will arrange for the property to be sold or to be auctioned off to pay for the due amount.
Both options affect the borrower's credit score. A borrower's credit score could drop by as much as 300 points. If the initial credit score is 700, expect the credit score to drop to 400 points.
Another effect of both options is that the borrower will not be able to obtain a new mortgage right away. In foreclosure, the borrower won't be able to buy another home through mortgage until after six to seven years. While a seller who sold his/her home through a short sale will likely be able to buy another home in two years. In essence, if a seller decides to sell his/her property through short sale, it will take him/her a shorter time to obtain a new mortgage as compared to foreclosing his/her previous home.
Once a borrower falls behind on his/her mortgage payments, he may want to consider doing a short sale vs foreclosure. First, it can help him save their credit history and future purchasing power; Second, it is a way out of a difficult situation both financially and socially; Third, it could reduce the stress of finding funds to answer a certain financial obligation; Fourth, it is realistic alternative to a mortgage foreclosure process.
Short sales actually benefit all parties involved. Through it, the lender gets the money owed from the sale of the property and the homeowner can walk away from the property he couldn't pay for anymore. The buyer ends up buying a good property at a discounted price.
If the borrower couldn't keep up with the monthly mortgage payments anymore, it is important to check with the lender if there are other options one could take to avoid losing their home. But if it's inevitable, consider short sale. Avoid foreclosure at all cost! Hire an experienced Realtor in this situation. He would know who to talk to, when to talk to them and how to handle all the paperwork to get the deal done.
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