Benefits of A short Sale
Whether you should do a short sale or let the home go to foreclosure depends on several factors. While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do.
Top Short Sale Benefits
1. 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 and they put that in writing.
2. 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 to 3 years.
3. 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, agent commissions, and back taxes.
4. 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 could actually boost your credit scores. Within a couple of years or less, your credit will be back to normal or even higher than before you short sold, and now you can even buy another home if you want.
5. 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 and neighborhoods they short sold in.
6. 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 seller listings in the neighborhood.
7. You don’t have to pay rent or make payments during the short sale process.Most short sales take 3 to 12 months to complete. Most people do not make mortgage payments during the short sale process (but do continue to live the house). You can use that savings of not having to make house payments or rent payments to relieve other financial pressures in your life.
8. You will likely qualify for some type of cash at closing incentive. These cash incentives range from $2,000 to as high as $35,000 and are being paid by Lenders, the U.S. Treasury (HAFA), and FHA (HUD) to Short Sale your home (versus be foreclosed on). You can use this money you receive at closing for moving and relocation costs (or to just get back on your financial feet).
Other Short Sale Benefits
You are in control of the sale, not the bank.
You may sleep better at night knowing who is buying your home.
You will spare yourself the social stigma of the “F” word, foreclosure.
Contrary to popular belief, you can be current on your payments and still effect a short sale.
Your home sale will be handled like any other home sale.
Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. Finding a lender who will fund that kind of loan is very difficult. If you are current on your mortgage, you can qualify for an FHA loan immediately as well, but lender requirements can be weird such as you have to move more than 600 miles away.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence. The wait for FHA is 3 years.
Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
Affects on Credit After a Short Sale
A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the word “short sale” on your credit report. It may say “paid in full for less than agreed” or “settled for less,” among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.
Major point drops are typically due to being in default, meaning you have fallen behind on your payments.
Affects on Credit After a Foreclosure
Depending on your credit history and other guidlines, Myfico.com shows 2 examples in which a credit score could fall 105 points to 160 points after a foreclosure. Generally, a foreclosure will remain on your credit report in the tradelines section for 7 years.
Credit Reports After a Short Sale
All lenders report short sales differently, with many reporting “paid in full for less than agreed,” and some report the short sale as a charge off. Negative credit, however, stays on your report for 7 years.
Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
Deficiency Judgments After a Foreclosure
Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure.