Understanding Short Sales and Foreclosures
Recent analysis shows signs that the housing market is gradually returning to stability after its catastrophic collapse in 2008. Unfortunately, current job market conditions have been leading some homeowners to consider walking away from their mortgages and suffering the penalties for foreclosure. These homeowners may not realize, however, that selling their home short could be an option.
The Difference Between Short Sales and Foreclosures
Short sales and foreclosures both carry penalties for a homeowner, but the severity of those penalties may differ depending on final conditions of the property transaction. For example, if a borrower has been diligent with their payments up until the point they decided to sell short, they may be allowed to purchase a new home again within 2-3 years, with FHA support. A borrower who has a foreclosure on their record, however, can expect to wait 5-7 years—the length of time the foreclosure appears on their record—until a lender is willing to help them purchase a new property. Additionally, both a short sale and a foreclosure will hurt one’s credit score, but the short sale tends to do less damage. It’s also worthwhile to note, for those still job-hunting, that prospective employers may look at the mark of a foreclosure as a reason to pass on a candidate for employment.
Benefits to the Owner
There are also less-tangible benefits to the short-selling homeowner, not the least of which is that a short sale is handled like any other home sale, giving the owner more control over the property’s final fate instead of the lending institution. The emotional impact of having to give up one’s home can be devastating regardless, but having the bank take over one’s property and demand that the premises be vacated immediately is especially difficult.
It’s important to note: Although selling short may seem to be the better option, it’s important to seek qualified financial advice before making this painful decision…taking the foreclosure may in fact be a wiser choice financially for certain homeowners. Knowing the full facts about one’s choices can help to ease the path ahead after giving up a home.
Jason Stichauf is a Licensed Mortgage Originator with PERL Mortgage Inc. You can contact Jason by phone at (712) 413-6216 or via email at jason@perlmortgage.com.
