You may have heard the two terms – foreclosure and short sale. We know, it’s not fun if you have been presented with these options by your bank. That means you are probably facing some tough choices. We’d like to help for you understand these two options and see which one may be better for you on the long run.
What Is A Foreclosure In Newport News, Virginia?
Simple definition: “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source). If you stop making (or you are unable to make) your mortgage payments, the foreclosure process is there to allow the bank to take back possession of your home so they can sell it and try to recoup some of the costs, or most of it, if possible.
You need to be very careful if you choose foreclosure on your home. Yes, foreclosure will completely absolve you of all your debt towards the house and the mortgage loan, but it will have devastating repercussions for your credit and financial future. Often, the bank will give you several choices. Hopefully, you have already spoken with the financial institution before things got too far and have reviewed and tried the other ways to fix the situation. Foreclosure is usually the last resort. In that case, the bank will evict you (the borrower) and then sell the property at an auction or through a real estate agent.
In regards to the details on how foreclosure may work differently for you if you live in another state… Check out this foreclosure process information at the HUD Government website.
What Is A Short Sale?
A short sale is a slightly better situation, because it is not as damaging on your credit as foreclosure.
The definition: “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)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.
It is important to note that in a short sale situation the homeowner is not evicted from the house. The owner is instead given the green light to sell the home at a discount (compared to what is owed on the mortgage). The difference (also knows as deficiency) is either forgiven by the bank. Important: the borrower has to get permission from the bank to sell the home at a certain discount. If granted, then the borrower (the owner) will go out on the market and sell their house. The benefit for the owner is that they can get different offers and select the highest one, giving them a better outcome. Both the owner and the lending institution benefit from the short sale more than they would from a foreclosure.
Short Sale vs Foreclosure – Your Options
Both foreclosure and short sale damage will damage your credit, but there is a significant difference on how. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
If you go through a foreclosure, you will not be able to get a loan to get a house within 7 yrs, but with a short sale usually the limitation is 2 yrs. That’s a big difference.
With many companies restructuring during the Covid-19 times recently, many people have lost their jobs. That can easily lead to foreclosure proceedings. Choosing between being foreclosed on and initiating a short sale (or a 3rd option… selling your Newport News house fast ) is an easy choice for a borrower having troubles paying their mortgage on time.
Often, the lenders will try to work with you and not jump to a foreclosure. Why? Becasue foreclosure is also a long and expensive process for the bank too…
If you are facing a pre-foreclosure situation, try these options:
- Talk with your lender and discuss ways that they can work with you on your loan. If you have any questions let us know on our Contact page and we’ll explain it all for you.
- Attempt a short sale or other programs your lender may have – these programs can help you catch up, maybe you can negotiate a different payment plan or a short sale.
- If the bank isn’t willing to work with you very much… a great option may be to sell your house to a cash buyer like us. Coastal Edge Homebuyers can help you sell your house fast for an all-cash offer. This will also help you save your credit! If you want to discuss your options, Just fill out the form on our website over here >>
- Foreclosure. This is your last resort. We highly recommend you try everything else and we hope you never land on that option.
Knowledge is power, use it. You can use us too, we’ll be glad to help you if you call us. Remember, there is always a way. You just need to find out your choices. Sometimes you also need to look elsewhere and get another opinion, not just from the lender. Call us, we will explain all to you with your best interest in mind.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.