Homeownership is a delight, but if you can’t make the payments it can become a nightmare. When you reach a point where the bank is threatening foreclosure, then you may feel like you’re out of options. On the contrary, there are a few options to avoid or, at least, delay foreclosure. The most common option to avoid foreclosure is a short sale. A short sale is essentially the sale of a home for less than what it is owed on it. For instance, if you owe $500,000 on the mortgage, you could feasibly use a short sale to sell the home for around $400,000 and assuage the bank or lender. But, is a short sale better than a foreclosure?
Not Necessary Be the Case Always
Many people think that opting for foreclosure is in their best interest because the bank takes control of the property. It might seem feasible that the bank seizing control of the property means that it’s completely out of the homeowner’s hands. Unfortunately, that’s not exactly true in every case. In fact, there are plenty of instances where you may still be liable for payments even after the foreclosure proceedings have finished. For instance, if the bank decides to auction off your house, then the winner of the auction is under no obligation to pay the total amount still owed on the mortgage. If they win the auction with a bid of $300,000 but the total still owed to the bank is $400,000, you may still be liable for that additional $100,000.
Why People Don’t Like Short Sales?
Short sales also get a bad rap because people think they won’t be approved for them. The common idea is that banks don’t want to approve short sales because they will naturally lose some money. That being said, banks are often much more willing to avoid foreclosure with the use of a short sale. Foreclosures are time consuming processes that often require expensive legal fees to carry out fully. Banks also have no guarantee of making their money back with a foreclosure. At the very least, short sales provide them with most of their money back and they provide you with peace of mind.
On top of all this, going into foreclosure can affect other aspects of your life much more harshly. For instance, after foreclosure proceedings have finished, it will be another 7 years before you’ll be able to purchase a home again (in most cases). A short sale might hurt your credit standing temporarily, but you can feasibly buy a new home almost immediately. Get a real estate expert review your situation to help determine your best options.
Foreclosures also have long-lasting social stigmas attached to them, and a foreclosure can even hurt your chances of progressing in your career depending on your employer. Applying for a new loan is also tough if you have a foreclosure on your record. Most lenders will not give you a loan if you’ve been foreclosed on within the last 7 years. By contrast, there is no need to disclose a short sale on any future loan applications and lenders generally won’t ask if you had to make a short sale.
All in all, foreclosures are rarely the best option if there is any possibility of a short sale (or even a full sale). Although every situation is different, real estate experts will likely advise you to opt for a short sale instead of a foreclosure if at all possible. Those real estate experts review all short sale offers presented to them in order to present each homeowner facing foreclosure with their best possible options.