Benefits of a Short Sale
As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they’re actually quite different, with varying timelines and financial impact on the homeowner. Here’s a very brief overview.
A short sale also known as a pre-foreclosure comes into play when a homeowner needs to sell their home but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.
On the buyer side, short sales typically take four to six months to complete and many of the closing and repair costs are shifted from the seller to the lender.
There are 5 main reasons why a Short Sale may be the better option.
- Banks will sometimes give cash for keys. Banks have been known to pay the sellers $3,000 to $10,000 to leave the home during a short sale.
- Avoid having the bank pursue a deficiency judgment against you and sue you for the remaining balance.
- Avoid a severe negative impact on your credit score. A credit score can be impacted anywhere from 50 to 200 points.
- Easier to obtain another mortgage within a shorter amount of time. Typically, banks won’t allow a borrower to obtain financing for 5 to 7 years after foreclosure. But banks generally will allow a person to obtain financing 2 to 3 years after a short sale.
- There is less emotional toll on a homeowner when completing a foreclosure. The stigma of having a bank foreclose is gone and the seller has more control. They can actually say they sold their home and it wasn’t taken from them.
On the other hand, a foreclosure occurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner.
After foreclosure the bank can sell the home in a foreclosure auction. For buyers, foreclosures are riskier than short sales, because homes are often bought ‘as is’ and after sitting vacant so long there may be substantial damages.