In doing a comparative analysis of a short sale vs. foreclosure, it is crucial to consider how these two real estate transactions work. If you have a property and you stop regular payments, the mortgage company will start the foreclosure process within two to three months after you have missed the deadline. If this happens, you may have another alternative in the form of short sale. If you only have these two options – short sale vs. foreclosure – the Short Sale is normally better since it provides you with the possibility of compensation while you’re in the home and your credit rating is less likely to be affected.
Short Sale vs. Foreclosure – What Is A Short Sale?
A Short Sale is a real estate transaction wherein you can sell your property for less than the debt on the current mortgage. For instance, if your property is on the verge of foreclosure, and you still need to pay the mortgage company with $80,000 on the mortgaged home, the company may foreclose the property and then have to put it on sale. You will suffer the consequence of a lower credit score since you have defaulted on the loan. To prevent this, you must search for a buyer for your home. The main disadvantage here is that the buyer may only pay less than the balance on the loan, such as $60,000 or less.
In a Short Sale contract, the mortgage lender usually agrees to a lower payment for the property. Meanwhile, the homeowner is also forgiven for the debt and total amount owed. The buyer will purchase the home for the agreed price. In this instance of short sale vs. foreclosure, the clear advantage to the homeowner is that the credit rating will not be damaged in the short sale. Nonetheless, you will need to find another home.
Short Sale Vs. Foreclosure – Foreclosure Defined
Of all the options to walk away from, foreclosure is the worst solution faced by homeowners. The inevitable outcome of a foreclosure is the lender taking over of the property. Aside from losing your home, the mortgage company can demand compensation against you for the unpaid loan plus the expense for the foreclosure process. Another consequence is the possibility of lowering your credit rating, which leaves your financial status less than desired for most creditors . Bear in mind that there are no advantages for foreclosure, so it must be avoided at all costs.
Nonetheless, if your home is in danger of foreclosure or you are considering applying for a Short Sale, then you must consult a professional who can provide you with better information about a short sale vs. foreclosure. There are many options to prevent foreclosure, so don’t hesitate to ask around.
In addition to a Short Sale, you may also persuade the mortgage company to discuss options for short refinance, wherein the company will refinance the mortgage price and keep you as the homeowner. In this option, a part of the market value of the home or property will be forgiven. This helps considerably in reducing the mortgage payments in favor of the borrower.