Foreclosure vs Short Sale

Realising that you are not in a position to make the mortgage payments does not evoke a very pleasant feeling. The next step that you are likely to take is weighing all the options available to you under such circumstances. Foreclosures and short sales are the common options people under such circumstances resort to. It therefore becomes critical to examine the pros and cons of these two methods thoroughly to analyse the future repercussions in a better manner.

Foreclosure is generally considered to be a lengthy, tedious and complicated process in which the bank becomes the house owner thereby ceasing your rights on the property. Not just that, a foreclosure against your name makes you ineligible to purchase another home at a moderate interest rate for at least 8 to 10 years. More importantly, foreclosures are much more damaging than short sales when it comes to the credit report of the house seller. While going through the procedure of foreclosure a house seller stands to lose at least 200 to 300 credit points.

While the terms of foreclosures appear negative to most people, a short sale is much uncomplicated and seller-friendly in the long term. A short sale generally occurs at a time when the sale proceeds of one's home are lower than what the house owner owes on his/her mortgage. In most cases, lenders tend to accept the proceeds of the short sale and do away with the remaining amount owed.

When it comes to credit, short sales are a preferred choice over foreclosure in which credit points drop drastically. In short sales, owners stand to lose out anything between 80 to 100 credit points. More importantly, unlike the foreclosure procedure which entails several years of waiting before the owner can hope to get reasonable interest rates, in short sales the waiting period comprises around 18 months.

Furthermore, one does not have to shell out anything while paying the attorney's fees, whereas in foreclosure the attorney fees are much higher. Moreover, unlike foreclosure in which all liens are exhausted, in short sales liens are negotiated that benefit the owner tremendously.

Although short sales score much higher than foreclosures for a host of reasons, it can be quite risky if you are not well aware of its pros and cons. For example, selling your house via a short sale deal is a preferred option; it is nonetheless a risky affair that can do much harm to your financial position.

To prevent any potential problem that may arise out of deals conducted through the short sale mode, one can seek valuable advice from any reliable real estate broker who has relevant experience in managing short sales. A reliable real estate broker can even help in putting the house on market even before one is allotted a negotiator. Most importantly, an experienced broker will be in a better position to guide you when you approach a mortgage firm and discuss the terms. Using his wide experience in the business, the real estate broker would take the pressure off your shoulders.