If you are unable to afford the monthly payments on your mortgage, or you are facing foreclosure, selling your home on a shortsale may help you. If the lender will agree to a short sale, you will have the option of selling the home for less than what is owed to the lender. The lender may lose money on the sale but will be spared the time and expenses of a foreclosure. With a short sale, you will also be relieved from the responsibility of having to pay the difference between the price the property sells for and the amount that you owe the lender.
The Stress Of Defaulting On A Mortgage
There are many different reasons why people fall behind in their mortgage payments, and some of the reasons are due to circumstances beyond their control. For example, a divorce or the death of a spouse can significantly reduce the amount of household income, causing a person to default on a mortgage. A serious illness or accident that results in a loss of income can also cause a person to default on a home loan. In addition to the stress that is caused by the predicament that makes you unable to make your mortgage payment, you have the additional strain of having to deal with a lender that is anxious to get your payment. If you know that you are not going to be able to keep up with the payments, or make them current, and you can get the lender to agree to a short sale, then you will be free from the burden of collection calls and the stress of an impending foreclosure.
Credit History
In addition to the relief of not having the financial burden of the mortgage any longer, your credit history will suffer much less of a hit with a short sale than if the property is foreclosed on and auctioned by a bank. If your home is seized by the bank, the foreclosure will remain on your credit report for many years, and you will not have the option of applying for another home loan for at least three years in most cases; finding a lender willing to take a risk on you in the future will be difficult, and you will likely have to pay very high interest rates. Not only will your ability to qualify for a home loan be affected, but your ability to receive a loan for a vehicle, a personal loan, or a line of credit will also be difficult.
If you have not missed any payments on your mortgage prior to the short sale, then your credit rating should remain stable. If you apply for a home loan that is more suitable for your current income and circumstances, and your overall credit is good, then you should still be able to qualify for a loan. However, if you have missed payments, your credit will be damaged. The mortgage will be reported as paid off, which is much better than having a foreclosure in your history, and the effects of the missed payments are not as devastating. This is especially true if the reason for the missed payments is a valid one. If your credit history was good prior to the income-altering event, some lenders may be willing to take a risk on you within a couple of years of the short sale.
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