Foreclosure Versus Short Sale – Breaking Down the Differences

Foreclosure Versus Short Sale – Breaking Down the Differences

If you are looking at ways to get a good deal on a house, you have probably heard of both a foreclosure and a short sale. However, many people are confused on what the difference is between the two of these.

If you are a homeowner that is having a difficult time making your mortgage payments and you haven’t been able to sell your house it’s important that you understand these two options.

The ins-and-outs of a short sale

A short sale happens when a homeowner is unable to sell their house for the amount that they owe to their mortgage company and is facing foreclosure. This was very common after the crash of the housing market. Home values had drastically dropped, and homeowners were left with upside down mortgages, where they owed more than the value of their house. This meant that if a homeowner wanted to sell their house they were going to have to make up the difference between the purchase price and their loan balance.

A short sale has to be approved by the homeowner’s mortgage lender. The lender has to agree to accept less than the balance owed on the loan. This means that if you want to sell your house as a short sale you are going to need to involve your lender. You will not have final say on whether a deal can go through or not.

If you are looking at buying a house a short sale is a good way to get a deal. However, the process can take much longer then a regular house purchase. It is not uncommon for a short sale to take up to 120 days to close. If you are looking to get into a house quickly, a short sale is not the best option.

The ins-and-outs of a foreclosure

When a homeowner is no longer able to keep up on their mortgage payment the lender eventually ends up taking back possession of the home. This is not a quick process. A lender is not able to start the foreclosure process until a homeowner has missed at least 3 months of mortgage payments. Then, after that there is a process of notices that need to be sent to the homeowner making them aware that the foreclosure process is being started and what action they can take.

During this period, homeowners can try to settle the situation with the lender through a short sale or by paying the money that they still owe. This is known as the “pre-foreclosure” and can last up to 120 days. If the homeowner is not able to make a deal with the lender on how to handle the situation, then the homeowner will be evicted, and the lender will take possession of the home.

Having a home foreclosed on is a big hit to your credit. It can take years to rebuild your credit score and it takes seven years for the foreclosure to come off your credit report.

While a foreclosure is not good for homeowners, it can be a great way for a buyer to get a deal. When lenders take possession of a home they want to sell it as quickly as possible. Often times they are only looking to recoup the amount of money that the homeowner still owes them. That means that buyers can get a great deal on a house.

If you are facing a short sale or foreclosure as a homeowner, it’s important that you communicate with your lender as soon as you know that there is a problem. There are times you’re able to work out a deal with the lender but not if you are ignoring the problem.

If you are interested in purchasing a short sale or foreclosure, make sure you do your research to understand what each process involves.