Sometimes facing the situation head-on produces the best outcome – Short Sale vs. Foreclosure FAQ
Issue: My Credit Score
Foreclosure: Score may be lowered anywhere from 250 to over 300 points, and will typically affect score for over 3 years. Foreclosure will remain as public record on a person’s credit history for 7 years or more.
Short Sale: Score may be lowered as little as 50 points and the effect on credit may be as brief as 12-18 months. Only late payments will show on the credit report as there is no specific reporting item for “short sale”. In most cases a loan is typically reported as “paid in full, settled, or paid as negotiated”.
Issue: Deficiency Judgment
Foreclosure: In 100% of foreclosures, the bank has the right to pursue a deficiency judgment. In most cases a foreclosure later sold as an REO will result in a lower sales price and a higher possible deficiency judgment.
Short Sale: In a successful short sale, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.
Issue: Can I get a Mortgage in the Future?
Foreclosure: A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for up to 7 years. In applying for a conventional mortgage, you will be asked if you have had a property foreclosed or done a deed-in-lieu in the last 7 years, which will affect future mortgage rates.
Short Sale: A homeowner who successfully closes a short sale will be eligible for a Fannie Mae backed mortgage within 2 years. A homeowner may apply for an FHA loan immediately if payments are current at the time of the short sale. If homeowner is late on payments, they may be eligible for an FHA loan after 3 years.
Issue: Current and Future Employment
Foreclosure: Employers have the right and are actively checking the credit regularly of employees who are in sensitive positions. A foreclosure in many cases is grounds for immediate reassignment or termination. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.
Short Sale: A short sale is not reported on a credit report and is therefore not a challenge to employment.
(*Source: 2011 Distressed Property Institute, LLC and is provided for informational purposes only.)
With accurate information and guidance homeowners don’t have to walk away and have long term ramifications. Working with the bank by doing a short sale creates a win-win for all parties involved.
It’s getting better. . . however, our current economy still has many homeowners who are in distress and facing hardships. We have seen the bitter reality that hardship does not discriminate against people for any reason. Homeowners of all income levels are facing challenges of owning a home which has lost significant value due to our recent economic upheaval.
Homefront Realty offers FREE, no obligation homeowner consultations. If you are unsure about your home’s value or your mortgage position, contact us – we CAN help!! HomefrontRealty.net
Homefront Realty – Palm Harbor/Clearwater – 727-641-4444