Short sale or foreclosure- which is a better option?
Are you having problems with making your monthly mortgage payments? You may be considering what to do next. You can either choose a short sale or a foreclosure. However, before you make any decision, it’s important to know the facts and understand the short sale process.
How do foreclosures and short sales work?
Foreclosures and short sales are both financial options available to homeowners who are behind on their mortgage payment or have a home that is worth less than the outstanding balance on the mortgage. In both situations, the home owner is forced to let go of the property. However, the timeline and other consequences are different in each situation.
When a homeowner misses three to six months of payment, the lender will record a notice of default. The homeowner will be notified that he is facing a foreclosure and he will be given a reinstatement period to make things right by paying off debts. If the mortgage balance is not paid off within the given reinstatement period, the homeowner receives a notice of sale and the property is then auctioned at a trustee sale to the highest bidder. This is what we call a foreclosure.
How does a short sale work? A short sale is an alternative to a foreclosure. With this transaction, the bank lets the delinquent homeowner sell the home for less than what's owed. There is an understanding that the sale price might not cover the balance of the mortgage.
The homeowner works with a Charlotte NC short sale agent and puts the house on the market. However, a short sale agreement does not necessarily release the homeowner from the obligation to repay any deficiencies of the loans, unless specifically agreed to between the parties.
There are many reasons why you should choose a short sale over a foreclosure.
Here are some benefits of doing a Charlotte NC short sale:
- It’s the first step to financial freedom.
- You are in control of your home sale, not the bank.
- You will spare your family of the social stigma the foreclosure brings.
- Your home sale will be handled like any other home sale.
- You will have peace of mind because you know who will be buying your home.
- You will retain some dignity in knowing that you sold your home.
Impact on your credit rating
The term credit rating commonly refers to a score issued by the Fair Isaac Corporation (a FICO score). Your credit rating indicates how creditworthy you are.
Lenders use your 3-digit credit score to help decide if they will approve you for a loan. While different lenders have their own standard for rating credit score, 700 and higher is usually considered good. Typically, the higher your score, the better your chances of getting approved.
A foreclosure can cause your credit rating to fall by 200 to 400 points. It also remains on a credit report for 7 years and can have a negative impact on your future borrowings and job applications. If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
On the other hand, a short sale can cause your credit rating to fall by 50 to 130 points, even though credit bureaus do not show the word "short sale" on your credit report. It may say "paid in full for less than agreed" or "settled for less," among other categories.
Buying a home again
Buying a home after a foreclosure or a short sale can be difficult. With a foreclosure, you become eligible to buy another home in 5 years, with some restrictions, or in 7 years with no restrictions. Aside from that, you have to report the foreclosure on all your future loan applications.
With a short sale, you may be able to purchase a new home immediately if your payments were never more than 30 days late and the lender does not require you to pay back the loan. Most lenders consider short sales in a better light and demand shorter waiting periods.
A short sale is better than foreclosure in many ways. Make sure to work with real estate agents who are experts in the art of negotiations of a short sale.
Visit our website at http://ShortSaleAdvisors.us/ for more information regarding short sales.
Call us now at 704-997-3794! You need the right team around you to ensure the success of the short sale.
In case you can not view this video here, please click the link below to view Should You Choose a Short Sale Over a Foreclosure? on my YouTube channel: https://www.youtube.com/watch?v=EBtTNIqFHbM&feature=youtu.be.