Benefits of A short Sale
Considering whether you should do a short sale or let the home go to foreclosure depends on several factors. Many home owners feel it’s easier to throw up your hands and let the bank take your home. However, in the future, they realize that might not be the wisest thing to do.
Some Short Sale Benefits
1. The deficiency balance or the amount you owe above the price you sell for is erased in most cases. And the banks put this in writing. If your loan is owned or insured by the following agencies:
- Fannie Mae
- Freddie Mac
- FHA
- USDA
- VA
These are quasi government agencies whose policies state that your short sale debt will be erased completely and they put that in writing.
2. Another advantage to consider is that you are eligible to buy another home much sooner compared to a foreclosure or bankruptcy. The most common loan programs, Fannie Mae and FHA, stipulate that you can buy another home under their programs in about 2 to 3 years, some even 1 year.
3. No cost to you. The bank covers the cost to get your short sale home sold. That is right. A short sale costs you nothing. The selling expenses are covered by your lender. That includes the title insurance, attorney fees, agent commissions, and back taxes. If you have other liens like credit cards or back taxes or condo fees, we can help settle that, and often buyers or the lender agree to pay it.
4. Your credit suffers less. Many people think that a short sale kills their credit permanently or irreparably. The opposite is true. That is the one big advantage of a short sale over a foreclosure. And your credit rebounds much more quickly with a short sale versus foreclosure for a simple reason – once the house is sold, you get a bump on the credit and since a short sale will happen quicker than a short sale, it does not drag your credit through years of bad credit. Within a couple of years or less, your credit will be back to normal or even higher than before you made the short sale, and you can even buy another home if that becomes your goal at a later date.
5. We have seen that you can often rent a comparable house for less than your current mortgage payment.
6. You avoid the embarrassment of a foreclosure. Neighbors always know when foreclosures occur, the courts eventually force a foreclosure sign in front. This is not the case with a short sale. With short sale, your listing looks like all the other seller listings in the neighborhood.
7. Most short sales take 3 to 12 months to complete. Most people do not make mortgage payments during the short sale process (but do continue to live the house) giving them the ability to save money to move.
8. You will likely qualify for some type of cash at closing incentive. Lenders typically offer some relocation assistance
Buying Again After a Short Sale
If you fall behind on your mortgage and do a short sale, you can typically get an FHA or conventional loan in about two years. We have lenders we can recommend.
Affects on Credit After a Short Sale
A short sale is considered to be a derogatory mark on your credit. After the short sale is complete, lenders typically put “paid in full for less than agreed” or “settled for less,” among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points. However, if this is your only negative credit item, we have seen credit rebound quickly after a short sale.
Affects on Credit After a Foreclosure
Of course everyone’s credit is different, but depending on your credit history, Myfico.com shows two examples in which a credit score could fall 105 points to 160 points after a foreclosure. Generally, a foreclosure will remain on your credit report in the tradelines section for 7 years.
Credit Reports After a Short Sale
Lenders report short sales slightly differently. However, most report it as “Paid in full for less than agreed.”
Deficiency Judgments After a Foreclosure
Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure.
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Principal is a professional investor and real estate broker.
Capital Home Buyers – 9259 Old Keene Mill Rd, Suite 201 Burke, VA 22015 United States
Phone: 800-404-7184 Toll Free: 800-404-7184 FAX: (860) 371-3738
