Foreclosure vs Short Sale: Saving Your Credit

What exactly does a foreclosure do to your credit? Simply put, it’s credit suicide. The plain fact is that by the time you reach the foreclosure stage, there’ll already be some serious damage. The foreclosure stays there for seven years, and even the best credit repair techniques can’t do much about it. And while it’s there, even finding a place to rent can be difficult. But unlike many homeowners, walking away isn’t your only option.

A short sale allows you to avoid foreclosure and minimize the credit damage. Basically, your lender agrees to discount your loan balance by receiving less than your home’s fair market value. It doesn’t appear as bad because you’re still technically making full payment for the loan, save for the late payments and penalties. Unlike a foreclosure, you can usually clean up a short sale in two years with some aggressive credit repair.

But before you consider a short sale, you have to think in the long term. Remember, you’ll still be losing your home and it will still damage your credit. Here are some basic differences worth keeping in mind.

• Foreclosures stay on your credit report a lot longer. If you’re planning to buy another home in the future, a short sale will make it easier.
• If you’ll be renting a place after a foreclosure, your options will be severely limited, and the process can be complicated.
• After a foreclosure, you will still owe your lender money. Most banks have hired collection agencies whose job is to get that money out of you, no matter what it takes.
• Short sales give you a limited time frame for finding a buyer.

In most cases, a short sale is always the safer choice. It can protect you from aggressive debt collectors and give you more ways to clean up your record. And if you still have your job or a source of income, you may qualify for a loan modification, which makes it easier to get back on your feet.

Perhaps the biggest drawback to short sales is the pressure to find a buyer on such short notice. If you are planning on keeping you home and still have an income, you need to contact us to see if we can help you.

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