Kara Beaulieu from Next Home Innovators joined us to talk about a short sale vs foreclosure.
When homeowners stop making mortgage payments, they have 3 to 6 months before banks start the foreclosure process. They will receive a letter in the mail saying that they have been delinquent and that the foreclosure process will begin soon. In this event, it will affect their credit report, which will not be suitable for the homeowner. The foreclosure will show up on their report for the next seven years at minimum, even after the procedure.
Another option to avoid foreclosure would be a short sale. During the time that a homeowner is delinquent, the 3 to 6-month period is the best time to apply for a short sale. The bank will be asking for documents to verify that a homeowner is not just walking away from a property.
A short sale is a win-win situation for the bank and the homeowner.
Whether you’re a buyer or a borrower/seller, both a short sale and foreclosure present different advantages and difficulties.
What Is A Foreclosure In Wichita, KS?
In simple terms, a foreclosed is when a bank or lender repossesses a house from a buyer because they couldn’t make the appropriate payments (source). If you stop making your house payments, your lender has the right to foreclose on your property to attempt to recoup the money lent to you.
A home will typically foreclose when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or through more traditional means utilizing the service of real estate agents. A foreclosure can damage a borrower’s credit rating and make it very difficult to obtain a mortgage for many years.
Depending on the state you live in, a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale in real estate is “selling a home for less than the balance remaining on the mortgage” (source: Investopedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the mortgage’s outstanding balance. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to recover from the 2008 crash completely, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option to selling your Wichita house fast) is an easy choice for a borrower having trouble paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways to work with you on your loan. We offer this service where we can help guide you in the right direction. If you run into issues with your lender, just reach out to us on our Contact page, and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much, your best option may be to sell your house. Work with a local real estate house buyer service like Kansas Home Guys to sell your house fast for an all-cash offer. We can look at your situation and make you a fair offer on your house within 24 hours if you’re interested.
- Foreclosure. The last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit, and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options between a short sale vs foreclosure, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so a short sale can be the better option if you have the opportunity.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.