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Is It Better to Do a Short Sale or Foreclosure?


If you’re currently having trouble “keeping up” with your mortgage payments, you may be wondering as to whether beginning the short sale process or simply allowing the bank to foreclose is the best course of action. With so much information surrounding the current conditions and recent changes in the real estate and mortgage market, it’s sometimes difficult to decide what the best course of action might be. As with any important decision-there are a few points to consider.

Future Considerations

You’ll definitely want to take into account your future plans. You’ll want to know how your credit will be impacted, what liabilities you could face, and whether you’ll be able to rent an apartment or even buy another home in the future. One undisputable fact is this: A short sale always looks better on your credit than a foreclosure. A short sale means you’re working with the bank in an attempt to limit your liability and also help mitigate the lender’s loss.

Time Frames and Procedures

There are procedures and time frame that come into play with either choice-short sale or foreclosure. And these can vary depending on the state in which you reside. Lenders are usually willing to work with you in the short sale process because it saves them money in the long run-even when the property is sold for less than the current loan amount. By law, lenders who take back a property through foreclosure are required to keep a percentage of the property’s value in reserves-tying up capital they would otherwise use to make loans and profit from interest charges.

Impact to Personal Credit

Because the foreclosure process can be so damaging to both lenders, as well as homeowners, most experts advise attempting a short sale before allow the home to fall victim to foreclosure. A foreclosure will remain on your credit report for many years-making it more difficult to obtain future financing. And even a short sale can also have its impact on your credit rating-especially if you’re more than thirty days delinquent, month after month. Each situation is different and it’s important to carefully evaluate any decision before going forward.

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