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The Advantages of a Short Sale


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TERMINOLOGY

When you owe more on your mortgage than your home is worth and you cannot wait for the property value to rise, a short sale may be the best way to get out of your loan. Compared with losing your home to foreclosure, a short sale can offer a few advantages.

Shorter Wait Time
A short sale will go on your credit report as a debt that was discharged but not paid in full. This information will be available to potential creditors for up to seven years, yet with a short sale you may be able to qualify to buy another home sooner than you would after a foreclosure. Under Fannie Mae regulations, borrowers can be eligible for a home purchase loan 2 years after a short sale compared with 5 years after a foreclosure. What’s more, lenders may be slightly more likely to loan mortgage money in the future to someone who went through a short sale rather than a foreclosure.  A short sale at least shows that you were proactive in trying to pay off the majority of your debt instead of simply giving up.

Possibly Less Damage to Your Credit Score

This is a debatable point. Some sources say that a short sale and a foreclosure are equals when it comes to damaging your credit score. Other sources say that a foreclosure will drop your credit score by as much as 200 points more than a short sale. One way you might limit credit score damage with a short sale is by staying current on all your mortgage payments until the sale closes.  A large portion of your score is calculated based on your history of timely payments and late or missed payments will certainly bring down your score by many points.

Psychological Comfort

For some people losing a home to foreclosure carries both a social and moral stigma. These homeowners may feel more satisfaction in the end by trying to discharge as much of their financial responsibility as possible rather than walking away from their mortgage.
A short sale is not an easy process and requires the cooperation of your lender. You may also be financially accountable for other things like home equity loans and sale taxes, but for many people a short sale can still be the better overall option.