Foreclosure vs. Short Sale

Ever wonder what the difference between a foreclosure and a short sale will be on your future? Lets break it down for you:

• With a foreclosure the homeowner who loses a home is ineligible for a Fannie Mae backed mortgage for a period of 5 years. With a homeowner who closes a short sale they will be able to purchase a Fannie Mae backed mortgage after only 2 years.
• For investors the short sale also outweighs foreclosure. If an investors property goes into foreclosure they are ineligible for a Fannie Mae backed investment mortgage for 7 years. An investor who negotiates a short sale will be eligible for an FHA investment mortgage after 2 years. (Who's noticing a nice trend here?)
• Future loans for any type of financing will require filling out an application with questions that ask "Have you had a property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years? This will negatively impact the interest rate of that new loan. Fortunately Short Sales will not be covered on these applications.
• How about credit score impacts?: With a foreclosure scores may drop from 250 to 300+. With a short sale only the late payments will show after a sale the mortgage will be reported as paid or negotiated. This will drop your credit score as little as 50 points if all other payments are being made. This term can be as little as 12 to 18 months.
• Deficiency judgement: In many states, other than Washington, depending on the kind of loan the bank has the right to pursue a deficiency after foreclosing on the property. Depending on the type of loan some lenders who accept a short sale may be able to pursue a borrower for a deficiency judgement. In some short sales we are seeing the lender giving up the right as part of the short sale.