If you’re behind on payments, it’s important to educate yourself as much as possible about the situation and your options. Below we’re going to describe what the difference is between a short sale and a foreclosure to make sure you understand the implications of both.
What Is A Foreclosure In Lancaster PA?
To try and make it as simple as possible, a foreclosed home is basically on where the owner is unable to make their payments on the mortgage loan and the bank has repossessed the house. If you stop making your house payments… your lender has the right to foreclose on your property so they can attempt to get back all the money that was lent to you initially.
Normally, a home is foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property and evicts the borrower. These properties are then either sold at auction (sometimes known as a sheriff sale). If the property doesn’t sell at auction in Pennsylvania, the bank will typically list it through a real estate agent. If you’re the borrower, a foreclosure can damage the credit rating greatly, and make getting another mortgage for a different property very difficult for the foreseeable future.
Pennsylvania and many other states have their own foreclosure process, but many of them can be found on the HUD website here.
What Is A Short Sale?
In a short sale, the home has not yet been taken back by the bank and title is still in the name of the borrower.
A Short sale is when the bank agrees to allow the borrower to sell the house for less than is still owed on the property. The lender needs to approve this specifically, and it’s crucial that you utilize an agent or cash buyer who understand this process well. The unpaid balance of the loan may or may not still be owed by the borrower.
It’s important to note that a short sale does still have an affect on the borrower’s credit. It’s not as bad for your credit score as a foreclosure would be, so that’s the silver-lining. However, because you’re paying the bank less than you owed, it will still bring your score down.
Also, this option can take some time, as different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and if even one of the lenders doesn’t agree, it could ruin the deal.
What Are Your Options – Short Sale vs. Foreclosure
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Lancaster house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or another program your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Sell Tucson Home Fast to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.