It is every person’s dream to secure a home for their family. To achieve this dream, it requires hard work and a lot of investment. Unfortunately for some, this dream quickly translates to a nightmare due to a set of unforeseen factors. You can lose your job or your source of income, which forces you into an indefinite foreclosure or short sale scenario. If you are in such a situation and don’t know what to do, then here are some tips on what to result to.
We will discuss the core differences between a foreclosure and a short sale to ensure you make the right decision depending on your situation.
Foreclosure Vs. Short Sale
When you are in financial difficulty and cannot, therefore, continue to pay for your mortgaged house, a foreclosure might be the ultimate result. It can be whether or not you owe more than the value of your home.
When you miss your monthly payment, the lender, mostly a bank, will give you a notice of default. If you cannot continue to pay for the mortgage, your lender may decide to issue you with foreclosure notices. If it becomes abundantly clear that you are unable to pay for the house, the bank can begin foreclosure procedure and ultimately repossess and sell your house.
The foreclosure procedures differ in different states and, therefore, can take varying time lengths accordingly. What is guaranteed is the surety that the defaulter will lose the house to the lender. It is usually a stressful period for the homeowner who has to become homeless due to foreclosure.
A foreclosure can also result in your credit score rating, taking a significant hit. This is because the homeowner accrues late mortgage payments on the way to foreclosure.
• Short Sale
This happens when a person owes more on their loan than the value of their home and therefore need to sell the home. It is a voluntary process and usually involves the homeowner selling the property for an amount that is less than what is owed on loan.
The lender has to approve for any short sale by the person. This is because the bank is likely to take a financial hit from short sale deals. To increase the chances that your short sale gets approved, you will need to provide evidence documentation that you cannot continue paying the mortgage. For instance, you can provide proof that you are out of your job or your business went underwater.
If I am having financial difficulties, a short sale will allow me to sell my house and pay for the remaining loan balance later.
When to opt for a short sale over a foreclosure
Foreclosures generally end up hurting the homeowner on several fronts. For instance, a person will have to live with the shame of being kicked out of their home. The credit score rating takes a hit, and as such, you get to wait for even seven years before they can apply for another loan or mortgage.
It is, therefore, advantageous to opt for a short sale agreement with your lender. The following are the situations that make a short sale better than a foreclosure:
• When you are looking to sell your house fast
When I want to sell my house fast, due to financial difficulties, it has always helped to settle for a short sale. Since the debt owed is more than the value of the property, it makes little sense of continuing with the mortgage payment. Equity is non-existent, and it would make much more sense in selling the home fast.
You can provide your lender with proof that you are in a difficult financial situation and agree that a short sale will be beneficial to your circumstances. There are lots of real estate investors that I have turned to when I need to sell my house due to difficulty in paying for the loan.
• When undergoing a divorce and you are far back on your mortgage payment
A divorce is usually an unpleasant experience for families. The matter is made worse if the home was under a mortgage. In such a situation, it becomes obvious that you might be unable to pay for the mortgage on your own.
This is because it might be that you were paying the mortgage together with your partner. With a short sale, the bank or lender has to approve first. The process to get your short sale will involve you explaining to your lender, the situation at hand and that you cannot continue to pay on the mortgage.
Once approved, you can then look for real estate investing companies that offer cash in short sale deals.
• When you want to relocate and to a new city
It is normal for people who are employed to get new job postings that may require them to move in short notice. In such instances, you may decide to sell the house in order to be able to pay for the remaining loan balance. What you have to remember is that the terms of the short sale need approval from your lender, and there are some criteria that need satisfying before that happens.
The major factor that will likely see your short sale deal approved is that the remaining debt you owe to the bank has to be more than the value of the house. Others can include proof of financial hardship.
Advantages of a short sale over a foreclosure
If you are still indifferent on whether to opt for a foreclosure or short sale, then the following benefits of a short sale can prove to be useful.
1. You will not have to suffer the stigma that is associated with foreclosures. Losing a home due to foreclosure is not only stressful but also embarrassing to you and your family.
2. If I decide on a short sale, I can be able to sell my house fast. There are numerous companies that can pay cash for your house, which makes it easy to avoid the pitfalls that come with foreclosures.
3. There are credit score advantages associated with a short sale. If I get to sell my house, my credit score rating will not take a significant hit, and I may be able to reapply for a new mortgage after two years. With a foreclosure, the period is usually 5-7 years before you can apply for a new loan or mortgage.
If you were wondering if a foreclosure or short sale is better, then the above can help you decide. A short sale is more beneficial than a foreclosure. It is a voluntary process while a foreclosure is forced upon you. Therefore, if you are having financial difficulties, apply for a foreclosure form your lender and avoid the baggage that comes with foreclosure procedures.