Foreclosure or Short Sale

by braddhesi

Foreclosure or Short Sale

The question always comes up, “Is it better to do a short sale than go through foreclosure?” The circumstances that lead up to the loss play a roll in the final answer along with the timing of how soon someone can purchase another home. These are the guidelines in place by FNMA and FHLMC.

Foreclosure: A legal procedure in which a mortgaged property is sold by the trustee to pay the outstanding debt following a default.

Short Sale: A workout program wherein the lender accepts an amount as payment in full that is actually less than the total payoff due.

In order to be able to purchase a home again after a foreclosure there are two timeframes that are determined by the circumstances that lead to the foreclosure. The two categories are Extenuating Circumstances and Financial Mismanagement.

Extenuating Circumstances: When a single occurrence or set of circumstances that prevented the borrower from meeting his financial obligations.

Financial Mismanagement: If unable to support the existence of extenuating circumstances.

The amount of time that needs to elapse after a foreclosure that was caused by extenuating circumstances is 36 months. The amount of time after a foreclosure that was caused by financial mismanagement is 60 months.

On a short sale circumstances are not he deciding factor like it is for a foreclosure. The loan to value on the next purchase is the deciding factor. If the borrower has 20% down payment on his next purchase the time needed to elapse is 24 months. If the borrower has less than 20% down payment on his next purchase the time needed to elapse is 48 months.