Oro Valley Real Estate - Short Sale or Foreclosure
What You Need to Know About Short Sales
If you owe more on your loan than your home is worth and need to sell your home, the transaction is called a short sale. You can only do a short sale if your lender approves it, because they must agree to take less money than they’re owed. To qualify, you must prove financial hardship with documentation. For example you could document that you lost your job and no longer have income to cover your housing payments.
You also must work with your real estate agent to provide your lender with sale prices of comparable homes in your neighborhood that recently sold. If your bank approves the short sale after analyzing this data, you can list your home for sale, and the lender must review each offer you get on your home before you can formally accept the offer and close the sale. A short sale will cause your credit score to drop as little as 50 points if you don’t incur any late mortgage payments during the short sale process. Your score can drop as much as 200 points, however, if you do incur late payments during the short sale process.
Rates are the lowest for borrowers with top-tier credit scores of 760 or higher, and rise as credit scores drop. Getting a new home loan after a short sale can take as little as two years if you put 20 percent down or more, and as long as four years if you put 10 percent down. However, as credit markets have improved in the years following the 2008 financial crisis, you can find lenders who may lend to you sooner. You will also need to consult your tax preparer for any tax consequences you might face on the part of the loan that was forgiven by your lender.
What You Need to Know About Foreclosures
If you’re in a financial hardship situation and stop making your payments, a foreclosure will be the ultimate result whether you owe more than your home is worth or not.
When you miss a payment, it’s called default. You’ll get a notice of default from your lender when you become 30 days late on your mortgage. If you continue to miss payments after that, you’ll eventually receive notices telling you that the lender will begin foreclosure, which will result in the lender repossessing and selling your home.
Foreclosure procedures differ by state, and as such, can take different lengths of time from state to state. The U.S. Department of Housing and Urban Development (HUD) provides a breakdown of foreclosure processes by state and includes timing estimates.
Your credit score can drop 200 to 400 points in a foreclosure. It hits credit harder than a short sale because you have to accrue late mortgage payments on your way to foreclosure. It can take up to seven years to get a new home loan after a foreclosure, but it can be significantly shorter if your hardship situation was beyond your control — such as the job loss example. You just need to connect with lenders to determine which one will lend to you sooner. Remember to specify that you have had a foreclosure.