Foreclosure rates are at their highest ever and this has inevitably led to a sort of desensitization of the general population to what a foreclosure means and the real damage it can do to your financial future. It may seem like the best option on the surface but it is essentially a huge red flag on your credit for the next seven to ten years and could preclude you from new employment, the ability to purchase a car, to the little things like even qualifying for a cell phone plan.
There is also a perception of foreclosure as the ability to live rent and mortgage free for months on end and then simply walk away from a home you can no longer afford or is too far underwater to sell when the bank gets around to it.In reality it is not that simple.Besides being forced to move, you will be faced with outrageous rental prices for the next three to seven years as you will not be able to qualify for a home loan for at least that long.
Further more, banks are entitled to serve foreclosed homeowners with huge judgments, which further damage your credit and leave you just as far in debt as you were when you were living in your home but now compounded with the necessity to pay rent.
So how is a short sale really better?
It is true that a short sale will also severely damage your credit score for years to come, but there are definite advantages to reaching an agreement on a short sale rather than a resigning to foreclosure.There has been plenty of buzz about how difficult short sales are to finalize and there are horror stories abound of homeowners’ headaches over paperwork and prolonged sales contracts.It is true that dealing with your banks can be a bit of a nightmare but recent legislation is working to help ease the short sale process by regulating maximum response times between you and the bank as well as simplifying the convoluted mess of paperwork.
In the end a short sale is a much better option as it is looked upon much more favorably than a foreclosure in the long run.The Federal Housing Administration (FHA) has expanded their loan regulations to allow borrowers to qualify for a new low interest rate home loan in as little as three years after their short sale has finalized- compare this with the seven long years with foreclosure and likely huge interest rates.Other lenders look at a short sale more favorably as well because they consider your willingness to work with the bank to fulfill your obligations under the loan note to dispose of the home as best as possible.Foreclosures cost banks a lot of money (of course it’s hard to feel bad for them) but it is a cost that most banks are willing to avoid and makes them usually will work with you to complete a short sale.