Sometimes homeowners fall behind and face the harsh reality of losing their home. If you're in financial distress, it's important to know your options. Here's the difference between a short sale and a foreclosure.
First off, what is a short sale? A short sale happens when a homeowner owes more on a mortgage than their property is currently worth. The homeowner then asks the lender to accept less than what is owed for the house. If the lender accepts the terms, the Realtor works with the bank to come up with a price for the home. Once a buyer is found, the process then takes around 90 to 120 days.
So what is a foreclosure? Foreclosure is a legal process which may be referred to as REO, or real estate-owned. That happens when a homeowner can't make their mortgage payments for three to six months. If an owner is unable to pay this debt, the lender repossesses the house and tries to sell it at auction or through MLS. And if no one buys the home, the lender generally retains ownership of it.
So which is better? Each process will be damaging to a seller's credit. As for a buyer, looking for a foreclosure or a short sale does or can have a price advantage. If paying your mortgage becomes a challenge, please talk to your lender. It may be possible to save your home through a loan modification or another option.