Finding Forclosures and Short Sales
As we all know foreclosures have been in the forefront of California real estate news for the past several years and the word "foreclosure" has become a household term. Another term that has come out of the housing market crisis is "short sale". Even today there are many people who don't understand the difference between the two.
To start, a foreclosure is where a homeowner simply walks away from the house without paying any more money. Selling a home as a short sale is where you sell your home for a lesser amount than what you still owe on the mortgage.
Between the two different transactions a short sale is your better option, however, your lender must approve of you selling your home as a short sale. Your lender will also need to agree to any offers presented by potential buyers too. If you are able to be in the position to sell your home as a short sale there are advantages of selling that way compared to foreclosure.
One of the benefits of buying a house as a short sale over a foreclosure is the amount of time it will be before you can qualify for a new mortgage. After you have gone through a foreclosure you may not be able to qualify for a new mortgage for about 5 years. After a short sale you may qualify for a new mortgage in as little as two years.
Another added benefit for a short sale is that it will have a less impact on your credit score! Why, because a short sale is viewed as a less serious situation than a foreclosure because in a short sale you've hung in there and worked with the bank rather than just simply walking away. As a result your credit score won't take as big of a hit compared to a foreclosure. On average there is a 200 point difference between doing a short sale versus a foreclosure.
Furthermore, your lender will also benefit from a short sale instead of a foreclosure, because even though the lender will take a financial hit either way a short sale will save the lender the financial burden of taking back the property and having to turn it around of a resale. On the other hand a short sale allows the lender an opportunity to find a resolution to the situation more rapidly by working with the current homeowner and as a result, a short sale may help minimize the lenders losses.
And lastly, more than a financial issue of a short sale versus a foreclosure is the emotional impact it will have on the affected homeowner because a short sale can give you a greater sense of well-being since you took the time to work with your lender making the effort to pay off some of your debt as opposed to just simply walking away from your financial obligation.
Obviously, both a foreclosure and a short sale are not the best ways of dealing with a new home buyer or seller situation, but when you have no choice a short sale does have advantages over a foreclosure.