What is Better, a Short Sale or a Foreclosure?
How are typical Americans to navigate the current foreclosure crisis and come out unscathed in the real estate market?
Values on homes are down thirty, forty, even fifty percent or more in some places from their values at the peak of the market and unemployment in various places around the country is easily in the double digits. Throughout the country, more than thirty percent of mortgage holders owe more than their properties are worth. Better than one out of every eight home loans are delinquent in some respect, and there doesn’t seem to be an end in sight.
If you are aproaching the point of defaulting on your mortgage, there are three basic options: a short sale, loan modification or a foreclosure. Many professionals these days are advising a a short sale, as they offer an upside for Realtors, agents, lenders and buyers. The question then becomes, is a short sale truly your best option as a consumer?
A lot of the time, the answer is going to be no, although many working with you in the process might want you to believe it is.
Let?s look at this in more detail. So you are struggling to make mortgage payments. What will happen if you quit making your payments?
First, it will really hammer your credit score. That score is crucial to future lenders who might decide at some later point just how good a risk you are, and may require you to work with private money lenders if you should need a loan. Also, your credit score is also being used by employers and landlords, to name a few. Deciding to move forward with an action that can ruin this score is something you really need to consider carefully.
This important figure is calculated with secret and guarded methods using information compiled over time from your credit files. These credit scores are basically an indicator of how likely an individual is to default during the first two years of a loan, and are used by almost everyone who extends credit.
Other companies have their own formulas that do pretty much the same thing. On another popular credit score scale, which runs from 500 to 990, stopping payments on all your loans will drop you into the low 600s.
If you have a credit score of less than 600 in today’s market, putting together a loan for any purpose can be very difficult (except, of course, if you are talking about private hard money loans). When sitting down to make your decision on which way to go, a short sale of your property will not save your credit, contrary to what many will have you believe. So is there really a beneift to going through a short sale?
The biggest benefit is getting rid of the large debt of your home and the drag it has on your finances, and keeping a foreclosure off your credit report. A short sale can impact your credit about the same as a foreclosure, but by short selling your home, you will be able to get another conventional type loan in about two years or so, rather than 3 or more with a foreclosure.
A potentially better option to consider is loan modification. this can often be a tough process to go through, but if you would like to stay in your house and save your credit, a loan modification may be a good option to explore.
Be sure to do your own research before you make a decision about which course of action you are going to take. It will also matter in which state you live, as there will be different ramifications for the various options. Seek out a highly reccomended real estate agent and/or real estate lawyer, make an appointment, and look at all your options before you make a choice. When making this decision, make sure you are comfortable with the direction you choose, good luck!
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