What is a short sale?
A short sale takes place when the proceeds of a real estate sale fall short of the balance owed on the actual loan. A short sale is generally agreed to in order to prevent foreclosure. Many times a bank will choose to allow a short sale when it believes it will result in a smaller financial loss than a foreclosure. For the homeowner, the advantages of agreeing to this process include avoiding foreclosure on their credit record. In short, a short sale is nothing more than negotiating with lien holders a payoff that is less than what they are actually owed.
How does a short sale affect my credit?
There is no way around it; both foreclosures and short sales will impact your credit. Credit is affected by late payments and delinquency on your mortgage. A short sale, however, damages your credit much less than letting a property go back to a bank through a foreclosure process.
Ultimately, the difference between short sale and foreclosure is realized in the future. There is a heavy advantage when it comes to purchasing a new home. If a bank forecloses on your property, you must wait two to five years before even attempting to buy a new home. When you complete a short sale, the wait is only about two years, according to current Fannie Mae guidelines.
It is a good idea to consult with a tax accountant (CPA) or lawyer to discuss your credit situation. Remember, everyone’s situation is a little different. You may be charged by these professionals, but the right information could save you a lot more in the long run, which is important for new purchases down the road.
What to do if you are in this Position
You’ve made the decision to avoid foreclosure by short selling your home. Contact me to take you to the next step.