The Credit Problems of a Short Sale Vs Foreclosure
It seems that in some towns in California, Michigan and Florida, nearly one is three homes you drive by are for sale. Most likely these homes are not simply voluntary sales by sellers looking to simply move, but rather, a short sale or a foreclosure. More and more homes are going into foreclosure in this economy, or at least being sold short. A short sale is when a homeowner is under water and agrees with the bank to sell the home for less than what is owed on the mortgage. A Foreclosure is simply the bank repossessing your home.
So, what are the credit advantages of a Short sale over a foreclosure?
If you have to foreclose on your home, you will not only have the embarrassment of being kicked out of the place you are living, but also take quite a hit on your credit score. The average drop in your Credit score will be between 200-300 points. In addition to this, you will not be able to buy a new home on credit for 7 years. For a short sale, the credit score drop can still be up to 300 points, however, as of late it seems like the drop is more in the 100-200 point range. Unlike with a foreclosure, the person will be able to purchase a new home after a 2 year waiting period usually.
The one advantage of going the foreclosure route instead of selling your home short is that you can usually live in the foreclosed home for 4-12 months, mortgage free, in a foreclosure, until the bank forces you to vacate.
Neither option is something anyone ever wants to go through, however it’s nice to know the positives and negatives of each, just in case you are in the ever growing group that has to make these decisions.
Check out more information on Credit scores and also the Credit Forum
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Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.