Over the past few years, the short sale has become a more common option for homeowners, who may be upside down in their mortgages. An alternative to foreclosure, the short sale involves homeowners making the decision to sell their property for less than what they owe on the mortgage.
This decision is a difficult one to be sure. If you find yourself in that situation, be sure to ask your real estate agent about the advantages and disadvantages of a short sale. Before making this decision, you should understand what the long-term effects of a short sale may be.
The most obvious advantage to a short sale is that it may help your credit rating by preventing a foreclosure from appearing on your credit report.
Because the mortgage lender will be compensated for the home, they are more likely to approve a short sale rather than going through the expense of a foreclosure. Short sale homes typically sell for more than a foreclosure, offering another advantage to the lender.
Opting for a short sale may allow you a bit more time to make future living arrangements. With a foreclosure, you’ll get about 30 days to vacate; you may get 90 days or more in a short sale situation.
While a short sale doesn’t appear as a foreclosure on your credit report, it will appear as a closed account, which can lower your credit rating by as much as 150 points, making it more difficult to purchase a home in the immediate future. By comparison, a foreclosure on your credit report can prevent you from qualifying for a home loan for seven years or more.
You will have to move out of your home and seek new housing - with a short sale on your credit report.
Depending on regulations in your state, the lender may require a deficiency note, which requires you to repay the amount still owed on the mortgage after the sale. This debt will almost always go on your credit report if not repaid.
There are also some tax implications to a short sale; the amount of the debt that is cancelled may be taxed.
Be sure to talk to your mortgage lender and your REALTOR about short sale options. These professionals can help you make the best decisions possible when it comes to selling your home, reestablishing your credit, and getting back on the road to homeownership as soon as possible.