The housing collapse of 2008 is stealing taking its toll on the United States. For homeowners, when your home is in jeopardy, it can be difficult to figure out what you should do. There are options out there, even for those who are very far behind on their mortgage payments, but you need to know about these options before they can really be useful to you.
At the time, most homeowners were unaware of what to do next. For 2013, the same can be said of investors looking for good investments from the downturn in the housing sector. Often times, this means purchasing up foreclosures, rehabbing the property and getting it back to market quickly.
First, we need to understand the difference between a short sale vs foreclosure. What we want to do here is show you the difference between each so that you can decide if one or the other is best for you or whether there is a third option that might be better for your personal situation. While the foreclosure crisis as a whole affects many homeowners, each homeowner’s circumstances are still unique and we should be aware of this before purchasing.
The Definitions: Short Sale vs Foreclosure
When it comes to understanding these terms, the most obvious differences lie in the fact that you are in control of the sale when you go through a short sale vs foreclosure where the bank takes over your home and handles things from there on out. With a short sale, fees for both you and the lender (typically a bank) can be lessened and this is why it is preferred over a foreclosure which costs you and the lender significantly more money. Some people believe that you must be behind on your payments in order to initiate a short sale, but this is not the case. In a foreclosure situation, the bank is merely taking over the property and it will eventually sell it to pay off the balance you owe on your mortgage.
In both situations, there is likely to be quite a large balance remaining if your home is considered to be underwater, but in a short sale situation you can sometimes try to get a price closer to the balance you owe since a bank may sell a foreclosure without the same amount of care regarding the price they receive for the home. In general, a short sale is the same as selling a house under other circumstances and proceeds in a similar way. You can generally purchase a home much sooner after a short sale than after a foreclosure, where the average wait time is between 5 and 7 years for your eligibility to return.
So Which One is Better on Your Credit?
Both of these are bad news for your credit, but a foreclosure is going to have a larger impact by far. In a short sale vs foreclosure situation where your credit is crucial to your quality of life, as it often is, avoiding foreclosure by any means possible is often going to be the route to go. If you have not gone into default, the impact on your credit score due to a short sale will be less than if you had been in default, but even then you will experience a drop that can be anywhere from 50 to over 100 points depending upon the credit bureau and how they categorize a short sale.
When it comes time, keep in mind that a foreclosure can actually be found on your credit score and could keep you from a job when your if your employer checks your credit history. A foreclosure will also stay on your credit report for 7 years and drop your credit score by at least 100 points, sometimes even more than 150 points, depending upon the credit bureau doing the reporting. In the end, when considering a short sale or a foreclosure, both of these are going to have deep and lasting effects on your credit that will be difficult to repair. If you have had a past foreclosure, make sure you monitor your credit (see junk debt buyers) with some type of strong id theft service to make sure it is reported accurately and that the charge off date is reflected in the reports.
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