Short Sales and Foreclosures

It happens more often than we would like. A homeowner starts off making payments on their house with the best of intentions. But over time, they find out that they can no longer keep up with their mortgage.

When homeowners are unable to pay their mortgage, they can end up going through a short sale or a foreclosure.

What exactly is a short sale and a foreclosure and how do they differ from one another? Read on to find out.

Short Sales vs. Foreclosures

Short sales and foreclosures are last-resort options for homeowners that can no longer afford to pay their mortgages. A short sale is a bank approved sale while a foreclosure is the bank repossessing the collateral of their loan (the house). Here are some differences between them.

Process: Short sales are when lenders allow homeowners to sell their houses for less than the amount owed on the house. Foreclosures are when the lender repossesses the house.

Timing: A short sale is much longer than a foreclosure. The process can last up to a year. Foreclosures are faster because the lender is anxious to recoup the money they are owed.

Credit Damage: Short sales and foreclosures will damage your credit but a short sale will do a lot less damage than a foreclosure will. If you went through a short sale, it is likely you will be able to turn around and buy another home, although getting a second mortgage can be difficult.

Foreclosure, on the other hand, will stay on your record seven years and it will be five years before you are able to buy another house.

Should I Buy a Home That is in Foreclosure or Being Sold in a Short Sale?

Buyers who buy houses in a foreclosure or short sale will be getting quite a bargain, but these options could come with a headache as well.

In a short sale in particular, the main setback is the amount of time a buyer will have to wait until the sale actually goes through.

The sales can take 3-4 months or more. This is because the lenders won’t approve the sale unless sellers agree to pay for things like wire transfers, repairs and closing costs.

Because the bank is stuck with the bill, it will try to negotiate with the buyer to get them to absorb some of these expenses.

Foreclosures come with a faster and easier selling process. However, buyers will need to buy the homes in cash. They will not be able to get a loan so they can pay for the house over time. They will need to do a “refinance” after the purchase.

Also, when buying a foreclosed house, buyers agree to buy in ‘as-is’ condition. The home is not inspected for damage and if there is damage existing in the home it will be the owner’s responsibility to repair it.

Short sales and foreclosures are not pleasant for homeowners but they do happen. On the bright side, they provide a way for buyers to get great deals on their homes.