AveryHess, Realtors® Blog

Short Sale vs. Foreclosure – What is the difference?

If you are in a home where you owe more on the mortgage than your home can sell for in this market, what are your options?

First, you can contact your mortgage holder and try to renegotiate the terms of your loan.  If the bank is not in favor of this approach you can sell your home as a short sale, this is where you owe more on the mortgage than you can sell it for.  This is a process the bank will be involved in the final approval of the sales price and terms.  The third option is foreclosure, this is where the bank takes the property once the owner stops payment.

With all these terms out there, how do homeowners know what is right for them?  What are the consequences of a short sale or foreclosure, how will it affect credit, job status and the ability to apply for future loans?

Foreclosure affects a homeowner’s credit drastically, can affect their job status especially with a security clearance and their ability to apply for future loans.  A successful short sale can help a homeowner avoid the pitfalls of foreclosure and the blemish it can leave on your record for up to 10 years.  Homeowners DO have options, knowing the consequences of foreclosure and short sale can help you make the right decision.

Foreclosure Consequences:

  • Credit score may be lowered from 250 to over 300 points and will remain as a public record for at least 10 years.
  • Employers, new and current, who require a credit check consider foreclosure the most detrimental credit items and can challenge employment.
  • The most challenging issue against a security clearance is foreclosure outside of a conviction of a felony. A security clearance can be revoked and the position terminated as a result of a foreclosure.
  • A homeowner foreclosed on is ineligible for a Fannie Mae backed mortgage for 5 to 7 years.

Short Sale Consequences:

  • Only late payment on a mortgage will show on a credit report which lowers your score as little as 50 points. A short sale is not reported on credit history.
  • Since a short sale is not reported on your credit history it is not a challenge to employment.
  • A short sale on its own does not challenge most security clearances.
  • A homeowner with a successfully negotiated short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.


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