Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties.
What Is A Foreclosure In Houston, Texas?
In simple terms… “A foreclosed house is a property where the owner can’t keep up with their mortgage payments, and the bank takes back the house.” (source). Should you cease making payments on your home, your creditor is entitled to initiate foreclosure process on your property, aiming to recover the funds that was lent to you.
A house is usually foreclosed on when the borrower doesn’t pay their mortgage.
The bank takes over the house and takes back control, forcing the borrower to leave. These houses are then put up for sale at an auction or through more conventional methods with the help of real estate agents. Going through a foreclosure can negatively affect a borrower’s credit score and make it extremely hard for them to get a mortgage for a long time.
Depending on the state you reside in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
At times, a short sale can be a mutually decided solution between the borrower and the lender. During a short sale, the property is sold for an amount that is less than the total amount still owed on the mortgage. The remaining debt, referred to as the deficiency, might or might not be the responsibility of the borrower.
This choice usually takes some time, especially if more than entity holds the mortgage.
All parties who have a stake in the property need to be in agreement with the terms of the sale, and the agreement might not happen if just one of the lenders disagrees..
Short Sale vs Foreclosure – Your Options
Although both choices have consequences, a short sale typically has a lesser effect on the borrower’s ability to obtain credit. A foreclosure might lower a borrower’s credit rating by 300 or more points, whereas a short sale might only slightly lower the credit score by 100 points.
Borrowers who have had their homes foreclosed upon frequently find themselves unable to buy another property for a period of 5 to 7 years with a conventional mortgage. However, in some cases, those who have gone through a short sale process are immediately eligible to buy a new home.
A lot of Americans are finding it difficult to keep up with their mortgage payments as the economy hasn’t fully bounced back from the 2008 financial crisis. Choosing between facing foreclosure or starting the process of a short sale (or a 3rd option… selling your Houston house fast ) is an easy choice for a borrower having troubles paying their mortgage on time.
Occasionally, lenders are open to working with borrowers to go ahead with a short sale, in order to avoid the expenses and lengthy procedure involved in going through a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We provide this service that can steer you in the right direction if you encounter problems with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Right Path Property Solutions to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to allow the property to go into foreclosure. This is the worst possible scenario and should be avoided at all costs. It will damage your credit score, and you might still owe money to the bank even once the foreclosure process is complete.
Understanding your choices could help you avoid a major hit to your credit score, enabling you to buy a new house once your circumstances get better. A foreclosure on your credit history can make that possibility nearly impossible for 5-7 years, so if possible, opting for a short sale might be the wiser choice.
Have a pending foreclosure? Not sure if a short sale will work for you? We’d like to make you a fair all-cash offer on your house.