Foreclosure or Short Sale: What's The Difference?

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Brandon Medina

2 mins

If you are a homeowner struggling to make mortgage payments, there are several options for you to decide. With a short sale, you get permission from your lender to sell your home for less than you owe on the mortgage. With a foreclosure, the lender seizes the home and sells it at auction. Whether you should make a short sale or let a home go to foreclosure depends on several different factors. One example is you may be able to buy your next home sooner with a short sale than a foreclosure. While for some homeowners, it is easier to let the bank take the home, which might not be the wisest thing to do. Regardless of which approach you choose, always obtain legal and tax advice before deciding.

So what is the difference between a Short Sale and a Foreclosure?

With a short sale, you can qualify to buy again with a conventional mortgage in four years. With foreclosure, that timeframe increases to seven years. Deficiency judgements can be negotiated in a short sale and with a foreclosure, it cannot. Another difference is in a short sale, you are not required to mention it on future loan applications but with a foreclosure that is a requirement. Short sales can also take months to complete. Foreclosure can happen almost immediately.

The main advantage of a short sale is that you're in control of the sale, not the bank. Your home sale will be handled like any other home sale, and you may prefer being involved in the selling process and knowing who is buying your home. There is also a negative social stigma that comes along with a foreclosure. Many people find it embarrassing and want to avoid the process by any means. You can also be current on your payments and still apply for a short sale. The main advantage of foreclosure is it's an immediate solution and saves you money. If foreclosure is seemingly inevitable, you can just stop making payments and live in the home until you get kicked out. Once that happens, you can leave the home behind and simply walk away. If something happens to break or malfunction during that time, you don't have to spend the money to fix it, which can also save you money.


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Brandon Medina

October 1, 2021

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