Short Sale vs. Foreclosure

Since many homeowners may not understand what a short sale is, they may not be aware of how a short sale on their home may be a better option for them than a foreclosure.

First of all, a short sale may be an option when a homeowner finds himself in financial difficulties and facing the possibility of not being able to meet their mortgage obligation. If the amount owed on the mortgage is more than the home is worth at the time, the mortgage lender may agree to a short sale: taking less than the amount owed them.

Now that is a simplified explanation and here are a few things a homeowner may want to consider if a foreclosure is a possibility.

• Foreclosure – Credit score may be lowered and will typically be affected for over 3 years.
• Short Sale – A short sale may lower the credit score as little as 50 points if all other payments are being made. A short sale’s affect can be as brief as 12 to 18 months.
• Foreclosure – Foreclosure may remain as a public record on the credit history for 10 years or more.
• Short Sale – A short sale is not reported on a credit history report. The loan is typically reported “paid in full” or “settled”.
• Foreclosure – A homeowner who loses a home to foreclosure may be ineligible for a Fannie Mae backed mortgage for a period of 5 years.
• Short Sale – After a successful and closed short sale, a homeowner may be eligible for a Fannie Mae backed mortgage after only 2 years.
• Foreclosure – Difficult to get security (such as military or government) clearance; current clearance revoked and position terminated.

None of these factors are set in stone. As with any other situation, it is best to consult with your mortgage lender for advice and guidelines in each individual situation. Regulations may vary from state to state.

To learn more about the short sale process, talk to your Chicago Title sales representative.