As a mortgage consultant in this economy, and in this Real Estate atmosphere, a growing question still, from current homeowners who can’t make or are choosing for some reason not to make their mortgage payment, “should I short sale or let my home foreclose?”. All in all, it may be a question of ethics when it comes to how your future credit ability will change, because there is not a huge difference in the way lending evaluates risk between the two. Either way, it helps to at first know the difference.
Compare and Contrast Short Sale vs Foreclosure
Lets start out with a scenario. You are missing your monthly mortgage payments, and lets say that you haven’t made a mortgage payment now for 8 months…TheTruthAboutMortgage reported that nearly 23% of homeowners in the Shadow Inventory have been missing payment for more than 12 months. The bank has probably sent you a bunch of paperwork, and you do not know what to do. Your current loan amount is $150,000, and your house might sell on the market for $148,000. If you listed it with a Realtor, you would have to come out of pocket maybe $13,000 when it is all said and done. You either do not have that much money to come up with, or you believe it is not worth selling your home and coming to close with money. At this point, you have proof that you are not going to make this mortgage thing work. If you continue missing payments, eventually the bank will kick you out, and go through a money pit process, for them, to get the house into foreclosure, get it listed, pay the Realtor, and sell the home. On the other hand, this is where the short sale comes into play. You might have a Realtor find a buyer for your house, and offer the bank what ever they think the home is worth, and many times the bank is willing to take a lower amount than what you owe on the loan because in the end, it will be less loss in money than taking a home through foreclosure. If you truly are not going to make the payments, which would in turn result in foreclosure, you might be doing the bank a favor by finding a short sale opportunity because it may be a better loss than if they had to foreclose…so it is good for them in some cases, and it is better for your credit report to have the short sale rather than the foreclosure.