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A short sale is a complicated process. It's not always the ideal outcome for homeowners, but sometimes it's the best option you have. There are 2 sides to every decision, however, so we will be examining the pros and cons of short sales and why, sometimes it may be your best option, but in other cases, it isn't.
The first thing we need to talk about is: What is a short sale? Well, let's put it this way. Say you bought a house for $150,000 and took a loan out for that house for $125,000. Now, let's fast forward a few years. You need to sell the house, but now it is only worth $100,000. What happens to that extra $25,000 you have from the loan?
Well, in a short sale, you get the bank to sell your property and release your liability for the loan. They sell it for less than the home balance. Now with this type of sale, there are positives and negatives. First, lets look at the pros.
- The financial implications of a short sale is a significantly better alternative than going through the foreclosure process. If you foreclosed, you could have to wait 7 years to buy another home. With a short sale, you are put on credit probation for 2 years and through certain loan programs, can qualify immediately for another home loan.
- It also gives you a little more time to stay in your home and more time to sell it.
- Your credit score will drop, by at least 100 points.
- If the bank takes a loss on your short sale, they could potentially file a judgement against you and require you to pay it in the future.
If you are thinking about going through with a short sale, consult with a real estate attorney first. We know some great ones we can refer you to. After that, it's important to sit down with a real estate expert to figure out what your goals are and how you can accomplish them.