Unfortunately, there’s been a lot of confusion in the media whether a short sale is truly better for a homeowner than a foreclosure. To find the answers, let’s take a closer look at Short Sale vs. Foreclosure.
Let’s establish five criteria for comparison:
- The ability to obtain a mortgage in the future
- The affect on credit score and credit history
- Possible affects on security clearances in a variety of industries
- A very important issue for homeowners today, current and future employment
- The deficiency judgment. What rights does a lender have to pursue a deficiency balance in short sale and in a foreclosure.
Now that we’ve established our criteria, let’s get started.
In a foreclosure homeowners may have to wait up to seven years to qualify for a new home loan. In a short sale a homeowner will be able to qualify for a Fannie Mae backed loan within only two years as long as they are able to meet loan criteria. And if a homeowner who did the short sale meets certain eligibility requirements, they can buy a home within two years with even less loan criteria.
This point goes to Short Sale. Next, let’s look at the effect on credit scores and credit history. This is one of the most widely debated topics surrounding short sales and foreclosures.
Some have made the unfortunate argument that there is no difference in the effect on a credit score whether homeowners short sale or allow a home to foreclose. While nobody’s credit profile is exactly the same, the short sale will almost always have less of an effect on credit score declined than a foreclosure. In fact, it can effect an individual’s credit score as little as fifty points as all other credit installments are being paid. And in some anecdotal cases there’s been little or no affect on a credit score in a short sale.
Another benefit for credit with a short sale, is that if it is reported as “Paid as Agreed” or “Paid as Negotiated” it usually remains on a credit record for two to three years. Foreclosure is reported in no uncertain terms, on a credit report, remains in credit history for seven years, and is a part of permanent public record.
Another point for Short Sale. Let’s move on to the third point for comparison: security clearances.
While it may not be as common, there are significant number of homeowners who’s employment involves some sort of security clearance or security check. Foreclosures will almost always have a negative effect on security clearances. On their own short sales will rarely challenge most security clearances.
Many people don’t understand that security clearances today are required in a variety of industries, not only in the military. For example, high level police, fire departments, government agencies, software development corporations, certain areas of telecom, and much, much more all require security clearances and/or security checks.
Looks like another point for Short Sale. Let’s move on to number four: the effects on current and future employment.
This may be the single most important issue to many homeowners today. As more and more employers review credit upon employment of a new hire, and do continuous credit checks on employees, a foreclosure may have adverse affects on a very important part of everyone’s life: either getting a job or keeping a job. Short sales are not reported on a credit report, and therefore on their own cannot specifically challenge employment.
It’s already clear who the winner is, but will this be a shut out? Let’s move on to the final criteria: deficiency judgments.
There may be nothing more stressful than losing a home, other than the prospect of a lender demanding payment for amounts owed for the rest of a homeowner’s life, even after foreclosure. In a short sale a homeowner has the opportunity to negotiate or completely eliminate a deficiency judgment. When a property goes into foreclosure this right is forfeited in most states. And a lender may have the ability the right to pursue a deficiency judgment.
So it looks like Short Sale is the shut out victor in the nose to nose battle of Short Sale vs. Foreclosure.
Do you have questions, or would you like to pursue a short sale? Call us and let’s talk:
Call Now: (888) 9-List-It.
That’s (888) 954-7848.
Or use the Get Short Sale Help Now form below and we will get back to you ASAP: