Even in the midst of deep financial struggles, the thought of bankruptcy or foreclosure on a home can be the biggest nightmare for a family. Luckily, the option of a short sale offers some level of relief when you’ve otherwise given  up hope on retaining the value of your house, condo, or estate. Short sales allow an owner who cannot afford their mortgage payments to sell the home without the embarassment or credit damage that foreclosure can entail.

Short sales are becoming  more common in today’s real estate climate as a symptom of the tight situation many lenders are in. A short sale  means that the lender will be getting less money than the property is worth. Although this seems like a bad deal for the lender, in reality they are happy to get what they can on the property when payments fall behind. But not everyone qualifies for short sales, and sometimes it may not be the best financial choice for a lender.

So what are the benefits of short sale? You will avoid the hefty damage to your credit resulting from foreclosure. You will also avoid the social stigma of foreclosure and “Bank Owned” postings on your front door. But your credit may not be squeaky clean afterwards. Unless the bank has specifically agreed not to report it, they may eventually report a Score Factor Code 22, which indicated delinquencies, derogatory records, and collections. And your credit rating will certainly be affected if you do not make your mortgage payments on time. That said, under Fannie Mae guidelines, you can buy a home again in 2 years after short sale.

That leaves the question of when it might be beneficial to foreclose? If you want to protect your credit and buy a home in the near future, you should avoid foreclosure if possible. But if there is no way around it, remember that there are a few benefits to foreclosure. The process can take months to conclude and during that time, you still get to live in your home. You will need to enter the renter’s market, but at least you won’t have to make mortgage payments. Unfortunately, the credit drawbacks are immense. The incident will remain on your credit report for 10 years and your credit will take a nose dive. You may not be able to buy a home again for 5 to 7 years.

Even if your situation seems bleak, remember that your financial woes are shared by many American homeowners. The real estate market of today is catering more and more to the tough economic situation that buyers and sellers are in.

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This is filed under Short Sales.

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