Take a minute and imagine you are one of the millions of Americans who has lost their job and is way behind on their mortgage payments with no chance of getting back above water. You have drained your savings account and the next step is to dip in that retirement fund you have sacrificed so much for. You never thought you would ever be in this position but you are. Do you let your home go into foreclosure? OR do you head down the road of a short-sale? What is the Real Truth behind your options?

A short-sale is often explained as a fast credit score saving alternative to a foreclosure, but that's not the real truth. From the perspective of a mortgage underwriter a short-sale can cause you to wait just as long as a foreclosure, before you can get approved for new mortgage financing, if you don't have the correct information. Let's take a quick look at what each option is, and what the effects are on your credit score and your ability to obtain mortgage financing in the future.

A Foreclosure: By definition, is a specific legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

A Short Sale: By definition, 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, whereby the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.

In Other Words: The bank sells the property at a loss, they sell the property short of what the amount of the mortgage is. This is often a great option for the bank because it gets the non performing loan off of their balance sheets and they don't have to pay all of the legal fees associated with a legal foreclosure.

What is the effect of a short sale & a foreclosure on your credit score:

How Long do you Have to Wait Before you can Buy a Home Again? Last March Fannie Mae changed their waiting periods as a result of the onslaught of short sales and foreclosures. This is very important to understand. There is a lot of mis-information about the waiting period. Both short-sales and foreclosures have the same waiting period. I hear many real estate professionals unknowingly provide their clients with the wrong information in regards to the impact on credit scoring.

Here is a Way to Dramatically Shorten the Waiting Period After a Short Sale 

IMPORTANT MORTGAGE BUDDY TIP: If you know that a short sale is going to be your only option, there is something vitally important that can have you back owning a home in 6 months or maybe less. Most people think that they have to be late to qualify for a short sale with their bank. This is not the case. If there are extenuating circumstances that arise and you cannot afford your home and you know that you won't be able to pay your mortgage. DO NOT MAKE A LATE MORTGAGE PAYMENT. If you can negotiate a short sale while still making your mortgage payments on time, you will only have to wait six months and sometimes less before qualifying for a new mortgage.

If you are one of the millions of Americans who have lost their job or were forced to take a reduction in pay; know the facts. Taking the steps to thoroughly understand a short-sale can be the difference between buying a new home this year or having to wait 2 years.