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Short Sale Information

Short Sale Articles

Short Sale vs Foreclosure

When you’re behind on your mortgage and don’t really want to keep your home, it might be tempting to just throw in the towel and let your lender take over. But that’s not always the best bet. If you’re on the verge of foreclosure, you may want to consider a short sale. The result may be the same—you don’t get to keep your home—but the advantages it offers can make the short sale vs. foreclosure decision worth a bit of thought.

What’s The Difference?

The main difference between foreclosure and short sale is that the latter doesn’t require you to be in default. Even if you’re current, you can still carry out a short sale, so you can get rid of the burden before it can affect your credit. There are also considerable differences between the short sale and foreclosure processes. In general, foreclosures are sold at auctions and require a lot of paperwork, while short sales can be listed on the MLS and handled by realtors just like any other home.

Getting Another Mortgage

Buying another home is also a key factor in deciding between a short sale versus foreclosure. With a short sale, you can get a Fannie Mae mortgage right afterwards provided you have never been more than 30 days late on a payment. Otherwise, you will have to wait two to three years for an FHA loan. If you go for a foreclosure, you can only buy a home after five to seven years, depending on state regulations and certain case conditions.

Your Credit Score

Both foreclosure and short sale will have a negative effect on your credit score, but short sales are much less derogatory and are easier to clear up. A short sale usually appears under “pay as less than agreed,” “pay as agreed,” or a similar category, depending on your lender’s policies. Score drops can be anywhere from 50 to 130 points, often as a result of default rather than the short sale itself. foreclosure can pull down your score by at least 200 points and as much as 400, and will remain on public record for ten years.

Post-sale Costs

In some cases, you won’t owe any money after a short sale, although state laws and bank policies may dictate otherwise. A foreclosure, on the other hand, almost always entails fees called deficiency judgments. This basically means you still have to pay back the amount you owe, and sometimes even the foreclosure costs themselves, after your home is auctioned off.

Moving Out

Both foreclosure and short sale proceedings provide a specific time frame for you to leave your home. If you’ve already received a foreclosure notice, filing for a short sale may stop the clock and buy you some time to find a new home. The wait time is usually from two to three months, but may be longer for complicated cases. If you let the bank foreclose, however, you may be evicted immediately unless you have made prior arrangements.