It’s never easy to hear that the bank is verging on foreclosing your home. Whether you’ve had an illness in the family, or someone’s been laid off, home payments are often the most expensive, and the most difficult to keep up with. In the event that the bank notifies you of impending foreclosure, know that you don’t have to just wait for them to seize your property. For homeowners struggling to make payments on a house, short sales exist as a possible, more positive alternative of getting out from under a massive loan. Here’s what you need to know about a short sale vs. foreclosure.
What is a Foreclosure?
A foreclosure happens when a homeowner misses a number of payments to their mortgage lender. In missing payments, they default on their loan, and if they are unable to pay back what they owe, their home will be foreclosed on. In the event of a foreclosure, the bank reclaims the house, evicts the homeowner, and then puts the home up for auction.
What is a Short Sale?
A short sale happens when a lender agrees to allow a homeowner to sell their home for less money than is left on their loan. While short sales often happen before a home is foreclosed on, they’re also useful before a homeowner even defaults on their loan, and simply recognizes that they’re struggling to keep up with the bills. Though a short sale can stop a foreclosure from happening, it’s important to remember that even when a lender agrees to a short sale, the homeowner may still be responsible for any leftover fees not covered by the sale of the home.
Short Sale Vs. Foreclosure
In both cases, the homeowner is required to move on from their existing house, but there are a few differences between short sales and foreclosures that typically make short sales more attractive:
Short sales are easier on credit
Where a foreclosure can result in a 200-400 point credit hit, ruining your chances for loans in the future, most short sales only result in a 50-150 point credit hit. That’s still a drop in credit, but it’s not as crippling as a foreclosure.
Short sales make it easier to own again
Following foreclosure, most homeowners are unable to borrow from any lender for around 7 years. The foreclosure must be disclosed to any lender during that time period, and will show up on your credit report as well. Even after the 7 years, many homeowners who were previously foreclosed on have difficulties finding a lender to work with them.
Oppositely, a homeowner who arranges a successful short sale can sometimes turn around and buy a new home immediately. While lenders are still likely to be wary, there’s no long-lasting “foreclosure” black mark on your credit, and you’re able to purchase a new home soon, without restrictions.
Short sales offer homeowners more agency
Finally, short sales offer the homeowner a bit more say in the sale of their home. You maintain control of your property, you choose who you sell to, and you have the possibility to negotiate with potential buyers for a price that’s beneficial to you. This is completely different from a foreclosure, where the bank seizes your home and simply hands it over to the highest bidder. When you opt for a short sale vs. foreclosure, you have a little bit more control over what happens to you, and your home.
A short sale can help you.
A short sale can offer relief if you’ve been struggling to make payments and fear foreclosure is just around the bend. By arranging a short sale, you’ll be able to lift some of the weight that comes with foreclosure, and you’ll be setting yourself up for a better future. If money is tight, and you’re having trouble with the mortgage, don’t be afraid to talk to your lender about your situation, and see what your options are. So long as they agree to a short sale, you can save yourself a lot of time and financial distress by getting rid of a troublesome home quickly, and before foreclosure.
If you’re considering making a short sale on your West Michigan home, be sure to give Renewed Homes a call. We’re a trusted, local home investor looking to provide fair, cash offers to homeowners who need to sell quickly. If you’re looking to get out from under a looming foreclosure, we can help. Give our office a call at (616) 208-3534 or contact us online today for a free cash offer!