Due to the current state of the economy many are turning to options of performing a short sale or foreclosure on their property, but what are the differences, and how do they affect your credit?
A short sale is when a banking institution decides to accept less than the total amount owed on a mortgage to avoid foreclosing the property. Banking institutions often allow short sales to avoid any foreclosure process as it is expensive and time consuming. A foreclosure occurs when the owner defaults on their mortgage payments. The lender or bank initiates the sale of the property often against the wishes of the owner. The unpaid mortgage on the property at this point can now be paid off by the proceeds of the sale. To clarify, both instances do reflect on your credit report as a derogatory item. How it effects your score majorly relies on the balance and past due amount of the loan. Generally, the higher the dollar amount is, the lower the score is.
When a foreclosure is reported on your credit, the balance that appears is usually that of the entire unpaid loan amount as of the date it went into foreclosure. For a short sale on the other hand, the reported balance should reflect as the outstanding loan amount as of the date of the short sale,minus the sale amount received from the buyer and agreed to by the lender. There should be a substantial difference in balances between the two. The negative impact to your score should be less with a short sale than a foreclosure since a short sale should generally reflect no past due amount.
One thing important to cover, is that foreclosures do not give you a clean slate. This tends to be a common misconception of foreclosure procedures. If your property does go into foreclosure you may still be liable for the difference of what is owed on the property versus what it sells for at auction. This is what is called a deficiency balance.
As with any credit items the outcomes of how the item reports can vary. If you do ever find yourself having financial difficulties with your mortgage do know there are options. Now more than ever there are many different options including short sales and foreclosures. Educate yourself of how this will affect you in the long run before making a final decision. Acquiring any one of these negative line items may later hinder you from being able to apply for a home loan depending on your stipulations. If you are unsure as to how this derogatory item can affect you consult with your credit consultant, bank representative or financial advisor.
MSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.
*The information in this article has been provided strictly for educational purposes.
