Advantages of Short Sales over Foreclosure
Tough financial times demand a decision. Homeowners who cannot make their house payments may have to decide whether to short sale their home or go into foreclosure. Which should they choose and why? While it may seem easy to walk away and let the bank have the home, consider the advantages of a short sale.
Foreclosure is the bank’s repossession of a home due to owner’s default in payments. A short sale is an agreement to sell the home for less than the amount owed. This price and terms of a short sale must be bank approved.
The Benefits of Short Sales
- Forgoing the social stigma of a foreclosure
- You know who is buying your home
- You can control the sale of the property
- You home can be handled like any other sale
The government has addressed the housing market and offers assistance on the website www.makinghomeaffordable.com. There is a government short sale program to provide incentives for short sales called HAFA. Home Affordable Foreclosure Alternatives is set up to speed up the short sale process and help the homeowner with a $3,000 relocation check. There are also incentives for financial institutions to aid the short sale process.
The advantages of a short sale over foreclosure
- Future home purchases
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. If you are current on your mortgage, you can qualify for an FHA loan immediately. If your payments are behind, but a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years. The wait for FHA is 3 years. If you choose foreclosure, you may have to wait 5-7 years to buy again.
- Credit Scores
A short sale is a negative mark on your credit. It may say "paid in full for less than agreed" or "settled for less," Credit scores can drop from 50 points to 130 points. However, these drops are due to being behind on your payments. A foreclosure has a larger credit drop from 105 to 160. It also remains on your report for 7 years. Another negative of foreclosure is that if a prospective employer runs a credit check, you may be denied.
- Deficiency Judgments
Short sales may be negotiated between the seller and the bank. There may not be a deficiency judgment. However in foreclosure, banks are unwilling to negotiate with a homeowner.
- Loan applications
Loan applications do not ask about short sales; however you are required to answer the question about a foreclosure or deed-in-lieu.
- Length of Time to Move
You may be able to stay in the home until the bank considers a short sale. After foreclosure, you have to vacate the premises immediately.
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. Foreclosures may have 1099’s attached even if the owner is exempt.
The financial, emotional and physical attributes of a short sale are definitely worth pursuing over foreclosure.