Effects of distressed home ownership on credit; short sale vs. foreclosure- what’s the difference? Why go through all the hassle? Why not just walk away and give it back to the bank?
Are you contemplating a foreclosure to solve your mortgage problems; just walking away and waiting for the bank to take it back? Consider this: you may be doing neuclear damage to your credit by allowing the banks to control the timeline of yor solution! The banks are not taking properties back, you may have 18, 20, 24 or more months without a payment on your credit report. Do you know what that will do to your score? Do you know how long it will take to repair that? You won’t even be able to finance a cantalope for years and years and years! Plus, conventional mortgage financing guidelines ban buyers for 7 years after a foreclosure.
The biggest hit will be on your score though; banks are not taking properties back… Trustee sales are being postponed and re-scheduled 90-95% of the time some days. They are contrlling the amount of inventory on the market so that we don’t see another 25% drop in just a few months- The market has stabilized in most areas and priceranges.
A short sale, on the other hand puts you more in control of the timelines… you have control of when you move out. The effects to your credit score are much more manageable too- somewhere between 100-150 points is the average “hit” depending on how long the lender servicer takes to approve the file, once you go late, but you may not even need to be late; some banks are approving short sales where the seller is not even behind on paymnents. That policy is lender specific and will surely become more and more so over the next few years.