Sometimes unforeseen circumstances make it difficult to continue paying a mortgage. While many fear foreclosure is the only option, some lenders may approve a short sale.
A short sale allows owners to sell their homes for less than they owe. These situations may arise when real estate markets change, and home values decrease, making it impossible to sell houses for enough profit that pay off the mortgages.
Here are two reasons why homeowners should consider short sales over foreclosures.
Lesser impact on homeowners’ credit scores
When homes sell in short sales, any balance due to the lenders may appear as outstanding debts on the owners’ credit reports. However, sellers can request that the lenders forgive the debt by agreeing to deficiency waivers. With these, the lenders may report the loans as “paid” to the credit bureaus, and sellers’ credit scores may not decrease as much as they can with foreclosures.
Quicker opportunities to purchase new homes
The wait time to apply for new home loans is less with short sales than with foreclosures. Many lenders approve new mortgages as soon as two years after short sales. A few do not have any mandatory waiting periods. On the contrary, banks often require applicants to wait three to seven years after foreclosures to apply for new loans. This means homeowners can get back into houses of their own much sooner with short sales.
Knowing the advantages of short sales may encourage homeowners to proactively discuss their options with their lenders before the banks foreclose.