Buying a home is a significant life event and is an exciting time. A home is a place that we expect to build memories that will last a lifetime. However, life isn’t easy and for most of us our lives and homes do not look like everyone else’s highlight reels on Instagram. Our financial situation can change suddenly. The mortgage payment, upkeep, and ongoing maintenance on your home become a burden you had not planned on. When a homeowner is unable to keep up with their mortgage payments a homeowner will be faced with three options – a short sale, a foreclosure or sell the home fast. The differences between a short sale vs foreclosure may give you motivation to act now rather than later.
What is Foreclosure?
If you stop paying your mortgage the lender has a right to take back the home. Foreclosure is the legal process a lender takes to reposes the home as a means of repaying the amount owned by the borrower. When you fail to make payments on your home the lender can foreclose to recover the money, they lent you. The lender assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of real estate agents. Foreclosure will significantly harm a borrower’s credit score, making it challenging to secure a mortgage for several years. Even though homeownership may not be on your mind now, your credit score reflects your creditworthiness and will affect rental applications, car loans, and utilities applications just to name a few.
What Is a Short Sale?
In a short sale, the homeowner still has ownership at the time of the sale. Unlike a foreclosure where the bank takes possession of the home then resells it at auction.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt”
A short sale is an option mutually agreed upon by the borrower and lender. Essentially, the lender agrees to accept a lower amount of repayment than originally agreed upon. This permits the home to be sold for less than the outstanding mortgage balance. However, it’s important to note that the borrower may or may not still owe the unpaid balance (known as the deficiency).
You will need to work with a real estate agent that is familiar with short sales. They typically take some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender does not agree. The lengthy process is also a factor for some buyers. When the goal is to sell the home fast you want to appeal to as many buyers as possible.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often 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 are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
If your economic situation is not going to change enabling you to get caught up on your mortgage, you have a few ways to take control and stop foreclosure. You have options. Consider the pros and cons of going through foreclosure vs a short sale. And thirdly, sell your house. There are quick home buyers like, JMS Home Buyers who pay cash for houses in York SC. Exploring your options now will allow you make the best decision for you and your family rather than having the bank take back your home.
The housing market in South Carolina has allowed most homeowners to have equity in their home. But we have worked with homeowners who got into a situation where the home value in its current condition was not worth more than the loan. When this happens contact your lender about a short sale. The lender may be willing to work with you to complete a short sale. They want to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work… your best option may be to sell your house. Work with a local cash buyer like JMS Home Buyers to sell your house fast. If you’re interested, we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website.
- Foreclosure. The last resort is to let the house fall into foreclosure. This is not the ideal situation creating more stress and hassles than if you worked with someone to solve the problem. As investors, we are not just buying houses. We are solving people’s real estate problems. It starts with a conversation where we can learn more about your situation.
By knowing your options, you may be able free yourself from experiencing foreclosure. A short sale can stop foreclosure and so can selling your home to an investor for cash. Your situation and the condition of your home will determine which path is best for you.
Have a pending foreclosure? We’d like help.
Give us a call anytime at 704-707-6016