I have seen a lot of Blogs about foreclosures and short sales recently. to address this in the simplist of terms I did some research and found an article written by Elizabeth Weintrab on About.com.
Basically the article indicates that your credit will be hit just as hard if you are foreclosed or you complete a short sale. There is one exception according to Elizabeth which is if you have no 60 day plus late payments on your credit report and do a short sale you may be able to purchase a new home immediately.
With a short sale the credit reporting wil be hinged on how the bank reports the credit. Unless the bank reports it as paid in full your credit will be hit hard. Typically banks report a shortage with what is called a code 22. This reporting indicates delinquency, derogatory records and collections.
The following items are outlined in the article Elizabeth Weintrab wrote identifying benefits and draw backs for foreclosure and short sales:
Benifits for Foreclosure
No mortgage payments to make
Foreclosure procedures take months to conclude
The home is yours until the foreclosurer is completed
No strangers are traipsing through your home
Banks sometimes give cash for keys after public sale
Draw Backs to Foreclosure
The right of home ownership is striped away
Homeowners return to the rental market as renters
The bank may post a notice of public sale on your front door
Your credit takes a nose dive and a foreclosure will remain on your credit report for 10 years
Under Fannie Mae guidelines, without extenuating circumstances, you will not be eligible to buy another home for 5 years.
Benefits For a Short Sale
Retain some dignity in knowing that you sold your home
You won't suffer the social stigma of the "f" word: Foreclosure
No mortgage payments to make, unless you choose to make them
You can meet the new owners
You will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5
If your credit report does not reflect a 60 day late pay, under fannie Mae guidelines, you will be elible to buy another home immediately.
Drawbacks to a Short Sale
Waiting for the bank to respond to an offer is frustrating
The bank will want to examine personal records such as tax returns, bank accounts, assets and liablitie, in addition to asking for a hardship letter from you
Accomodating buyers will mean keeping your home in spotless condition for weeks or months until an offer is received and putting up with traffic through your home.
There is no assurance the bank will accept a short sale offer
The derogatory credit will remain on your credit for 7 years
For many sellers, though, the chance to buy another home in two years is the real motivation to do a short sale. Good credit behavior can suppant bad credit after two years, even though the derogatory marks will remain,
If you want to see the orignal article look at http://homebuying,about,com/od/shortsale/qt/071707_SSreaon.htm
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