Short Sale – Impact on Credit When You’re Current at Time of Sale

All across the United States the housing market has an abundance of distressed homes for sale. A home sold under distress conditions refers to both short sold and foreclosed home sales. Potential home buyers should understand the differences between these types of sales as they impact the buying process in a number of ways.

As implied, short selling refers to selling a home for less than what is owed. In order to complete this type of transaction, the seller must get the mortgage holder to issue a reduced pay off amount. The primary reason a mortgage holder may issue a reduced pay off is if they believe the homeowner has the potential to go into the foreclosure process. The mortgage holder would prefer to avoid the foreclosure process as it is costly and it tends to drive the property value down even more, resulting in an even greater loss.

Property Condition – Short Sale Pro, Foreclosure Con
Most of the time a person short selling their home will still reside in the property. In the case of a foreclosed home, the seller is the mortgage holder; typically, the prior owner either abandoned the property or was evicted. Normally it is better to have a person residing in the home at the time of or just prior to the sale, as they will still need items such as plumbing and electricity to work properly in order to stay in the home. A foreclosed home on the other hand, may have been empty for many months, and issues with utilities or appliances can be created from lack of use. In addition, a homeowner being evicted from their property is more likely to have a lack of regard for the property’s upkeep, knowing they will have to move out.

Transaction Time – Short Sale Con, Foreclosure Pro
The short sale purchase process is typically much longer than the process when purchasing a foreclosed home. Whereas buying a foreclosed home can fall into normal timelines of one to two months, buying a short sell house can drag on for much longer, sometimes taking upwards of six months. The reason for the increased timeline is that the bank has to decide on whether it would benefit from issuing a reduced pay off. As such, they examine items such as the likelihood of the customer going into complete default and whether other options, such as loan modification, would be better. Additionally, the bank has to determine what they believe the property is worth, whereas a foreclosed home has already had some type of valuation done.

Getting Value – Short Sale Pro, Foreclosure Pro
Typically, the sale of a home under distress will lead to a reduced price in comparison to the traditional non-distressed sale. Regardless of whether you wish to purchase a home being sold short or a foreclosure, getting a home inspection done is absolutely critical in order to understand potential issues with the property you intend to purchase.