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Short Sale vs Foreclosure: What’s the Difference?


Every year, thousands of people short sell their homes or have their homes go into foreclosure. Rates of short sales and foreclosures may be dropping throughout the nation, but they’re still a reality for a lot of homeowners.

Are you currently having a hard time making your house payments? Are you confused about what your options are to get out of your house and move on to something more affordable?

If you’ve been wondering about the difference between a short sale vs foreclosure, keep reading. Explained below is everything you need to know.

What Is a Short Sale?

A short sale occurs when a homeowner sells their property for less than what they still owe on their mortgage. For a sale to count as a short sale, it must meet these two criteria:

  • The homeowner is too far behind on payments to catch up
  • The housing market has gone down and the house is worth less than the balance that remains on the mortgage

There are lots of reasons why people choose to short sell their homes. Often, though, it’s to help them avoid foreclosure.

What Is Foreclosure?

Foreclosure is a situation in which the lender takes ownership of a home because the homeowner can’t make payments on it any longer.

The lender initiates the foreclosure process and tries to sell the home as quickly as they can. The goal here is to get an amount of money from the sale that is as close as possible to the original loan amount.

Foreclosed homes are often abandoned. If a homeowner is still living in the home, though, they’ll be evicted during the process by the lender.

Short Sale vs Foreclosure: Which Is Better?

At first glance, it might seem like a short sale is always a better option for homeowners. There are certainly some situations in which this is the case. However, there are also times when a foreclosure is better.

The following are some of the pros and cons of short sales and foreclosures that you ought to consider:

Short Sale Pros

If you choose to short sell your home, you get to maintain a certain sense of dignity.

You and your real estate agent get to control the sale of your home, rather than letting your lender take over and handle the job for you. You get to meet the new owners, and you also get to avoid the social stigmas associated with a foreclosure.

When you decide to take the short sale approach, you also don’t have to make any mortgage payments (unless you choose to do so).


A short sale also, in many cases, doesn’t hold you back from buying a new home.

Under the current Fannie Mae guidelines, you can often apply for another mortgage within two years if you meet certain eligibility requirements. Based on the state of your credit report (if you don’t have any late payments that last beyond 60 days), you may also be able to apply for another mortgage right after you short sell your home.

Short Sale Cons

Of course, there are also downsides to short selling your home.

For example, you still have to get the sale approved by the bank, and lenders are known for taking a long time to approve such requests. They have to look at a lot of your personal records, including bank statements and tax returns. They may also require you to write a hardship letter before they approve anything.

Hanging out in limbo while waiting for a response from your bank can be quite frustrating, especially when your house is on the line.

Short sales also require you to accommodate buyers while they tour your home.

This means you’ll have to keep your house clean and will have to make efforts to stage it to make it more appealing to buyers. The tips listed in this helpful article can make this process easier, but it’s still frustrating for a lot of busy homeowners, especially those with children or pets.

A short sale also affects your credit report for seven years. This can make it harder for you to get approved for loans and credit cards in the future.

Foreclosure Pros

There aren’t a lot of benefits to choosing to let your house go into foreclosure instead of short selling it. There are a few, though.

For example, you don’t have to make any mortgage payments during the foreclosure period. You also get to stay in your home until the foreclosure gets wrapped up. This can take several months, which gives you time to make a plan for the future.

With a foreclosure, you don’t have to worry about getting your house ready for showings, either. This takes a lot of stress off of you and gives you time to plan your next move.

Foreclosure Cons

For most people, the cons of foreclosure outweigh the pros. There’s the social stigma associated with foreclosure, and you have to forfeit your right of homeownership.


Most people who have their houses foreclosed upon have to start renting, and foreclosures make a serious dent in your credit score.

Foreclosures also remain on your credit report for 10 years, instead of the seven associated with a short sale. You have to wait up to seven years before you can apply for another mortgage as well.

Get Out of Your House Today

As you can see, there are a lot of important nuances in the short sale vs foreclosure debate.

If you’ve been wondering which is a better option for you if you need to get out of your house in a hurry, you now have some more information to help you make the right decision for yourself and your family.

Keep this information in mind, as well as the alternatives to both short sales and foreclosures, as you begin moving forward and making decisions about your home.

If you need more real estate advice, don’t hesitate to check out some of the other articles on our site, especially those in the Sell category.

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