When you fall behind on your mortgage payments, it can be challenging to figure out your options and determine the best course of action to avoid foreclosure. Two common options are a short sale and a foreclosure, both of which have pros and cons that you should understand before making a decision. In this article, we’ll be talking about some pre-foreclosure tips and giving you information on understanding short sales vs. foreclosures.
What is a Short Sale?
A short sale is when the lender allows you to sell your property for less than what’s owed on the mortgage. It’s a way to get out of your loan without going through foreclosure, and it can be less damaging to your credit score. However, there are still some downsides to consider, such as the impact on your credit, taxes on forgiven debt, and the potential for deficiency judgments.
What is a Foreclosure?
A foreclosure happens when your lender repossesses your property, usually resulting in more fees and issues for you in the long run. It can have a severe impact on your credit score and make it challenging to qualify for a new mortgage in the future. You may also be responsible for any remaining balance on the mortgage, known as a deficiency judgment.
Pros and Cons of Short Sales vs. Foreclosures
Short Sale Pros
- Can be less damaging to your credit score than a foreclosure
- Allows you to sell your property for less than what’s owed and get out of your loan
- May be able to qualify for a new mortgage sooner than if you had gone through foreclosure
Short Sale Cons
- May still have a negative impact on your credit score
- You may be required to pay taxes on the forgiven debt
- Your lender may pursue a deficiency judgment
- You can give your home back to the bank and get out of your loan
- You won’t have to worry about the expense of selling your home
- You can start over and rebuild your credit
- Can have a severe impact on your credit score
- This may make it challenging to qualify for a new mortgage in the future
- You may be responsible for any remaining balance on the mortgage
- Contact your lender: If you’re struggling to make your mortgage payments, contact your lender as soon as possible. They may be able to offer you options to avoid foreclosure, such as a loan modification or forbearance.
- Consider a short sale: If you’re unable to keep up with your mortgage payments, a short sale may be a better option than foreclosure. It can help you avoid the severe impact of foreclosure on your credit score and give you a chance to start fresh.
- Seek professional help: Working with a qualified mortgage relief specialist can help you understand your options and make an informed decision. They can guide you through the process and help you avoid common pitfalls.
If you’re facing the possibility of foreclosure, it’s important to understand your options and make an informed decision. Short sales and foreclosures both have pros and cons that you should consider before making a decision. We hope these pre-foreclosure tips were helpful for you. Contact a qualified mortgage relief specialist to learn more about your options and avoid foreclosure.