What’s the Difference Between a Short Sale and a Foreclosure?

Knowing the difference between short sale and foreclosure is the key to completely understand which best solution to go when a homeowner is facing a financial difficulty. Although the short sale process is considerably complicated, its outcomes will all be worth the time, patience, and diligence in the end.

Click a link below for a quick reading of particular information you want to know:

• What will happen to my credit score?
• What will happen to my credit history?
• How do I know if my property should undergo a short sale or a foreclosure?
• How long will I have to wait to buy a new home?
• What will be the effects on my future loans?
• Does it affect my employment opportunities?
• How does a short sale versus a foreclosure affect the deficiency judgment?

What will happen to my credit score?
When the short sale is successfully close, your mortgage will be reported on the credit score as paid or negotiated. The score may be lowered as little as 50 points which may affect you for 12 to 18 months. On the other hand, a foreclosure means lowering your credit score to as much as 300 points, with a minimum of 250 points, affecting your credit score for over 3 years.

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What will happen to my credit history?
A foreclosure will reflect on your credit history for over 10 years or even more, and which will also become a public record. But a short sale provides you a great chance to avoid that kind of situation. Following a successful short sale process, your credit score will be marked as paid in full or negotiated, and will not be reported on your credit history.

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How do I know if my property should undergo a short sale or a foreclosure?
Your mortgage lender will make the decision whether your house should go for a foreclosure or a short sale. However, you can do something to persuade your lender to agree to a short sale, which is a win-win solution and saves you from damaging credit implications of a foreclosure. You can do this by giving a solid proof why you cannot pay the mortgage, and that the amount you’ll receive from a short sale is the fair price in the market. Mortgage lenders who think they will receive more by taking possession of your property and selling it themselves will likely not agree to a short sale.

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How long will I have to wait to buy a new home?
Following a foreclosure, it would usually take 24 to 72 months before a lender will give you an interest rate that’s acceptable. For homeowners who have previously undergone a short sale, most mortgage lenders will offer them a reasonable interest rate in less than 2 years. In addition to that, Fannie Mae guidelines offer you a great chance to apply for a new loan immediately after a successful short sale in Minneapolis. But you have to make sure that your payments were kept current and that you had no behind payments for 60 days on the record.

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Does it have any effects on my future loans?
In most cases, a mortgage lender will not ask a homeowner to declare or question about a short sale on a standard loan application (1003). With regards to foreclosure, on the other hand, a homeowner will be asked if he has had a foreclosed property in the last 7 years, which naturally affect the interest rate. Fannie Mae-backed mortgages will be available to homeowners following a short sale after only 2 years. But when a property is lost due to a foreclosure, Fannie Mae-backed mortgages will not be available for at least 5 years.

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Will it affect my future employment opportunities?
Many employers run credit checks on employees for particular positions. Since a short will not appear on your credit report, your current employment status will not be challenged. But when you’ve a foreclosure on your credit report, there are some employers who may consider it a reason for your reassignment or even termination. A foreclosure marked on your credit report can extremely harm your employment opportunities such as future promotions and other employment opportunities.

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How does a foreclosure or a short sale affect the deficiency judgment?
When your short sale in Minnesota is handled successfully, your mortgage lender may release you from any deficiency judgment against you. Yet if the lender does pursue you, the whole amount will be significantly lower because your property was sold at a fair price closer to the market value, compare to a REO (Real Estate-Owned) sale. With the case of foreclosure, except those states that don’t have deficiency judgment, the bank has the right to pursue a deficiency judgment against you. With your foreclosed property going through the REO process, or maybe sold at an auction for a much lower sales price, this would result to a higher deficiency judgment against you, too.

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