The Benefits of Short Sale vs. Foreclosure
A home owner thinking of a short sale recently asked me why they should short sale versus just walking away and letting their lender foreclose on the home. I gave them the short answer: “It’s much better for your credit.” Below are 6 benefits of selling short with your current lender Vs. letting the bank foreclose and ruining your credit for several years.
- The upside down house debt is erased in most cases. If you are selling because of a financial hardship, then the upside down house debt will be automatically erased in most cases. If your loan is owned or insured by the following agencies: Fannie Mae, Freddie Mac, FHA, USDA, and/or VA; their policies state that your short sale debt will be erased completely.
- You are eligible to buy another home much sooner compared to a foreclosure. The most common loan programs, Fannie Mae and FHA, stipulate that you can buy another home under their programs in about 2 years.
- Short Sale is at No Cost To You. That is right. A short sale costs you nothing. ALL the selling expenses are paid by your lender. That includes the title insurance, attorney fees, and agent commissions.
- Your credit suffers much less much less damage. Many people think that a short sale will be the kiss of death to their credit. 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. The other benefit is that you will have less debt. (More debt hurts your credit score.) You will have a lower debt to income ratio, which will actually boost your credit. In a couple of years or less, your credit will be back to normal and you can buy another home.
- You can often rent a comparable house for less than your former mortgage payment. I often see homeowners rent larger, nicer homes for less money in the very same areas they short sold.
- You avoid the humiliation of a foreclosure. Neighbors know when foreclosure occurs. Not so with a short sale. With short sale, your listing looks like all the other normal listings in the neighborhood.