Short Sale VS Foreclosure

    Define Short Sale – short sale is one of the last options before foreclosure. By exercising a short sale, the sellers are asking for the lender’s approval to sell the property for less than the outstanding mortgage balance. Therefore, the seller is asking the lender to forgive any mortgage debt and to sell your house for a lower amount than you owe.

    Define Foreclosure- a foreclosure is a home owned by the bank which once belonged to a homeowner. Usually a foreclosed home was abandoned or handed over to the bank voluntarily. Foreclosure stems from a variety of reasons, but mainly from the seller not making payments on the home.


    One of the main differences between a short sale and foreclosure is the fact that a foreclosure is a lot harder on the sellers credit score. Your credit score can drop 200-400 points in a foreclosure. Why is this? During a foreclosure you accrue late mortgage payments. In result, it can take up to seven years to get a new home loan after foreclosure. Getting a new home loan after a short sale can take as little as two years if you put 20 percent down or more, and as long as four years if you put 10 percent down. However, as credit markets have improved in the years following the 2008 financial crisis, you can find lenders who may lend to you sooner.

    When it comes to these two options, it really depends on what you are looking for. Both a short sale and foreclosure has a different process and will have different financial consequences as well. A short sale is often used as an alternative to a foreclosure because it mitigates additional fees and costs for both the creditor and borrower. Once again, the negative impact on the borrower’s credit score is typically smaller in a short sale than in a foreclosure.

    Advantages

    • The median price of a foreclosed home is $120,000 which is 37% lower than a non-foreclosed home.
    • In many cases, the repairs needed for a short sale property are far less than those needed for a foreclosed property.
    • Short sales usually offer a substantial discount which saves you thousands of dollars and offers you great future equity when obtaining a home.
    • In a foreclosure, the banks are usually very motivated to get the property sold, so they will often negotiate price and other costs.

    Disadvantages

    • Foreclosures are as is; no warranty is given and you may miss flaws in the property.
    • In some cases, it can take longer to buy a short sale rather than a foreclosure.
    • Short sales are also “as-is”. Lenders typically refuse to pay for suggestions from a home inspection.
    • Since nobody is living in the home, the yard is often unkempt which leads to much needed repairs.

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