Whether you are buying or selling, a short sale and a foreclosure each present their own set of difficulties you should understand. Let’s review the difference between a short sale vs foreclosure and help you decide the best outcome for your situation.
What Is A Foreclosure In Reston, Virginia?
Simply put, “a foreclosed property is one in which the owner is unable to make their mortgage loan payments and the bank has repossessed the home” (source). Basically, if you stop making payments on your mortgage, the lender has the right to foreclose on the property to attempt to recoup some or all of the money that was lent to you.
Banks will typically start the foreclosure process when the borrower has missed three to six consecutive months of mortgage payments. Once the foreclosure process is concluded the lender assumes ownership and takes possession of the property. The borrower will then be forced to vacate the property. Foreclosed properties are often sold at auction or on market by specialized local real estate agents. Foreclosures significantly damage the credit of the borrower and make it very difficult to obtain new loans for years to come.
Depending on the state in which you reside, the foreclosure process may work in different ways. Check out the foreclosure process information page at the HUD Government website.
What Is A Short Sale?
The definition of a short sale is… “the sale of real estate in which the proceeds from selling the property fall short of the balance of debts secured by liens against the property. The property owner cannot afford to repay the full amount of the liens and the lien holders agree to release their lien and accept less than the amount owed on the debt” (source: Wikipedia)
In contrast to a foreclosure, in a short sale the home is still owned by the borrower when the property is sold. A short sale price is agreed upon by the borrower and the lender and the property is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) then may or may not be owed by the borrower.
Short sales often take several months as there may be several institutions that own the mortgage or a stake in the property. All parties involved must agree to the terms of the sale which can sometimes cause issues if one party does not agree with the terms of the sale.
Short Sale vs Foreclosure – Is there a Better Option?
While both options have ramifications, a short sale has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points where a short sale may only dent the credit score by 100 points.
Borrowers who property are foreclosed on are often ineligible to purchase or rent another home for 5-7 years. Under certain circumstances, a short sale borrower can turn around and purchase another property almost immediately.
While Americans across the country are struggling during an uncertain economy, many are having a hard time making their monthly mortgage payments. Choosing between a short sale vs foreclosure (or a 3rd option… selling your Reston house fast) can be a difficult choice for a borrower having troubles paying their mortgage on time.
Our suggestion would be this:
- Talk with your lender first to discuss ways that they can work with you on your loan. We are more than happy to help guide you in the right direction if you run into issues with your lender. Simply reach out on our Contact page and we will discuss your situation and the best solution for you.
- Attempt a short sale or other programs your lender or local government agency may have that forgive part of your loan or creates a new or more favorable monthly payment so you can get back on your feet.
- If the banks or local agencies aren’t willing to work with you your next best option may be to sell your house. Work with a local home buyer like Sell Simpli to sell your house fast. If you’re interested in selling we would be happy to discuss your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. The last resort (WE DO NOT RECOMMEND) is to let the house go to foreclosure. This is the worst case scenario. It will harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished. Call us first to help you find another solution. There is always a better way out!
By understanding your options between foreclosure vs short sale, you may be able to avoid significantly impacting your credit which may allow you to purchase a new home as soon as your situation improves. A foreclosure makes that extremely difficult for a minimum of 5-7 years. So if you have the opportunity a short sale may be the better option between the two. Or work with us on a cash sale solution and sell your house fast and avoid the hassle!
Worried about a pending foreclosure in Reston? Still trying to understand the differences between a short sale vs. foreclosure? We’d like to help you review your options or make you a fair all-cash offer on your house.