Short Sale vs. Foreclosure

Issue

Short Sale

Foreclosure

 Credit Score

A short sale itself will minimally   affect your credit score, usually around 50 points. Late payments usually   have the largest negative impact on your credit score from a short sale and   can average 30 points or more each.

Your credit score could be lowered   300+ points and will stay on your record for 10 years!

 Credit History

There is not a credit reporting item   for a short sale. Upon sale, your mortgage company will typically report the   short sale as ‘Paid’, ‘Settled in full’, or ‘Paid as Negotiated’ on your   report.

A foreclosure will remain on your   credit for 10 years and is permanent in the public records of your county.

 Current Employment

A short sale is not an actual item on   your credit report and typically will NOT affect your employment.

Your employer has the right and many   times will actively check your credit if you are in sensitive positions.   Sometimes a foreclosure is grounds for immediate re-assignment or   termination.

 Future Employment

A short sale is not an actual item on   your credit report and typically will NOT affect future employment.

Employers do check your credit   history for many job applicants. A foreclosure is one of the most negative   items you can have on your credit and may affect future employment.

 Future Loan with

a Mortgage Co.

You typically do not have to declare   to future mortgage companies that you previously performed a short sale.

On the federally mandated standard   loan application form 1003, you will be required to answer ‘YES’ to the   question ‘Have you had property foreclosed upon or given title or deed in   lieu thereof in the past 7 years?’ Answering ‘yes’ affects the interest rate   you will receive.

 Future Fannie Mae Loan – Primary Residence

After a successful short sale you may   be eligible for a Fannie Mae backed loan after only 2 years.

After a foreclosure you will be   ineligible for a Fannie Mae backed loan for a minimum of 5 years.

 Future Fannie Mae Loan – Non-Primary

After a successful short sale you may   be eligible for a Fannie Mae backed loan after only 2 years on non-primary   residences.

After a foreclosure you will be   ineligible for a Fannie Mae backed loan for a minimum of 7 years.

 Deficiency Judgment

It is typical for the lender to give   up the right to pursue a deficiency judgment against the borrower. This is   stated in approval letters, and is not legal to collect in many states.

The bank has the right to pursue the   deficiency judgment in all foreclosures, where allowed by law.

 Deficiency Amount

A short sale home is sold at or near   market value and in most cases is a greater value than a foreclosure sale   which results in a lower deficiency. This deficiency is typically forgiven.   This higher selling price helps to cut your lender’s loss.

If the home does not sell at a   foreclosure auction it will have to go through the bank REO system. This will result in a longer sell   time and potentially a higher deficiency judgment for the homeowner.

 

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