If you can no longer pay your mortgage and selling your home is the only way out, the two ways this can be done are via foreclosure or through a short sale. Many people prefer a short sale because they are selling the home as opposed to it being sold from under them.
On the other hand, from the lenders prospective, they look at short sales and foreclosures as more or less the same thing. It is still the sale of a home for the means of paying off the mortgage.
If you foreclose, this record will remain on your record against you for a period of up to ten years, making it extremely difficult to enter new loans. You will need to work hard to rebuild your credit rating.
Short sales are an option before the home gets to the foreclosure process. Bear in mind that short sales will still negatively affect your credit score though; at times dropping it to as low as 200. One advantage to a short sale though, is your credit rating can recover from a short sale faster than from a foreclosure.
Any credit cards that are currently still being used are a good way to rebuild your credit score. Make payments on time and try and reduce the outstanding balance to zero.
The real disadvantage of a short sale is that the price will usually be below market value, but a foreclosure auction will normally do no better. The remaining portion of the mortgage will be yours to pay off via other means.
A plus is keeping control of the sale and not handing it over to the bank. These sales are treated like any home sale. Credit bureaus don’t show short sales on your credit rating, but rather as a ‘paid as agreed’ or ‘paid as less than agreed’.
If foreclosure seems imminent, any other option is normally better as it takes longer to recover from a foreclosure than anything else. Your ability to enter other loans will be impaired for many years to come.
In a nutshell, if refinancing isn’t an option for you, than a short sale may be the better option. It shows lenders you are trying to resolve the problem and it will not remain on your credit history for the same length of time.
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