A client recently asked me why he should Short Sale his home instead of allowing the lender to foreclose on the property. The easy answer is "It is better for your credit", however there are a number of reasons why a Short Sale is a benefit over walking away and letting the lender foreclose.
1. A Short Sale has less of a negative impact on your credit than a foreclosure. A Short Sale will drop your credit score 50 to 100 points which is less of an impact than a foreclosure. However, once the Short Sale is finalized, your credit will rebound relatively quickly. In addition, you will have less debt and less debt will boost your credit score. As long as you keep your other payments current and/or work on your other credit issues, your credit will be back to a normal range in just a couple of short years.
2. You are eligible to purchase another home in shorter period of time after a Short Sale than a foreclosure. With a common loan program currently available, you will be able to purchase another home just 2 years after a Short Sale. In the event of a foreclosure, in most instances (not all) you will need to wait at least 3 years.
3. There is no cost to you to do a Short Sale. The lender will pay the expenses associated with the Short Sale including Title insurance, real estate commissions, county taxes, etc....
4. The difference between what you owe and what is accepted as payoff in a Short Sale is often erased. If you loan is owned by or insured by: Fannie Mae, Freddie Mac, FHA or VA and you are selling because of a financial hardship, their policies state that your debt will be forgiven. In most instances, if you are selling because of financial hardship, your debt will be erased.
5. You can rent for less than your current mortgage payment. I recently had a client who found a home to rent that was similar in size and features to the home he was Short Selling and was able to rent it for $500 less than his mortgage payment. If the client puts that money aside for the next two years, he will have a sizable down payment when he is again eligible to purchase a home with financing.
6. You may be eligible to receive CASH from your lender for doing a Short Sale. Banks are now offering up to $30,000 to people during the Short Sale process. I have one very happy client who received a check for $30,000 upon the close of escrow. This cash is left on the table if you opt for a foreclosure.
7. You may need to disclose a foreclosure on an employment or rental application. When looking for a rental, landlords tend to be more understanding of a Short Sale than a foreclosure. At least in a Short Sale, you tried to remedy the situation and were in contact with your lender. With a foreclosure, it looks like you just walked away. When it comes to employment and some jobs, you will be asked if you have had a foreclosure. If you do a Short Sale, you can answer NO rather than wondering if the foreclosure kept you from landing the job.
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Lisa Aguilera, The Aguilera Real Estate Team
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