In these challenging economic times, more and more homeowners are finding themselves weighing the pros and cons of a short sale versus a foreclosure. It may go without saying that you want to try to avoid foreclosure at all costs. But after months, if not years, of battling overwhelming debt and an underwater property, foreclosure might seem appealing due to the shear fact that it’s easier. However, the long term effects of a foreclosure might be more difficult than you realize.
For starters, there is your credit score to consider. A foreclosure can adversely affect your credit score by 100-200 points, while a short sale will probably cause closer to a 50-130 point drop. Another thing to think about is future employment. It has become standard for prospective employers to run credit checks during the interview process. A poor credit score and foreclosure could certainly hinder your chances at getting the job.
Unless you have unique circumstances, you will need to rent a home after you move. Most rental applications will specifically ask about foreclosures, in addition to checking your credit. A landlord will probably look more favorably upon a short sale than a foreclosure, especially if you include a letter with your application explaining the circumstances.
Buying after short selling is also easier than buying after a foreclosure. Generally speaking, FHA requires you to wait three years. However, if your payments never fall behind 30 days late and the lender does not require you to pay back the loan, you might be able to buy sooner. Of course, you will need to speak to a loan officer regarding the specifics of your situation to get a more accurate assessment.
If you are one of the many homeowners weighing these options, don’t do it alone! As a real estate professional who has achieved the Certified Distressed Property Expert (CDPE) designation, it is my mission to assist homeowners by giving them ALL of their options, and aiding them in making an informed decision.
Emcee Arah - "the REALTOR with Architectural Dimension" – is both a Certified Distress Property Expert (CDPE) and a Certified Investor Agent Specialist (CIAS). He is uniquely equipped to assist you in navigating today's residential real estate market. Contact me online or by phone at (301) 452-5252. And don't forget to leave your comments on my Facebook page – I'd love to hear from you!
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