Comparing Foreclosure and Short sale

11 Sep

Comparing Foreclosure and Short sale

Have you fallen behind on your mortgage? There are two major options to be taken in the event of delinquent mortgage payments. These options are foreclosures and mortgages.

Foreclosure happens when your mortgage loan is at default and the bank reclaims possession of your home. The advantage that foreclosure brings is that you can walk away from your home, which may be advantageous if your recent mortgage is higher that the home value. However, the disadvantage of foreclosure is that it takes a heavy toll on your credit score that will stay on your credit report record for up to 7 years. Your score can be negatively effected within a range of 100 to 150 points after a foreclosure. The worst part about foreclosure is that it will render your search for a new home difficult. After foreclosure, you may no longer be eligible to purchase another home for two to five years or depending on the legislation in your state.

A short sale, on the other hand, is a type of a bank agreement which provides that your home will be sold for less than what you have invested in the event that you are no longer able to make a payment.

Positively, a short sale gives you control, not the bank. This is referred to as a more responsible form of walking away from your home, but still retaining the chance to buy another home as soon as possible in certain conditions. If you have fallen behind on the payments, it will take at least three years before qualifying on FHA loan. Also, your credit score will take a negative dive ranging from 50 to 130 points. Even though credit bureaus never show “short sale” statuses on a report, you are still identified as either paid in full for less or settled for less, which will damage loan opportunities in the future.

Both foreclosure and short sales are bad records or warning signs on your credit report for several years, thus generating less opportunities for loans or good interest rates.

Jennifer Fields
Oklahoma City & Edmond Real Estate Agent
405.330.0031

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