Foreclosure is a home owner’s worst nightmare.

Not only do they lose their house, but this long a painful process take a debilitating toll on savings and credit scores as well.

Thankfully, the national rate of foreclosure is now at a 13-year low. It was down to 0.47% at the end of last year.

However, that fact does nothing to reduce the pain of people currently going through it. Similarly, it does nothing to soothe the anxiety of anyone facing foreclosure in the near future.

Short sales, by contrast, may offer an alternative that can solve the problem.

But what actually is a short sale, and how might it help? Keep reading to discover 5 key benefits of a short sale.

What is a Short Sale?

Let’s begin with a definition.

Short sales are an alternative to foreclosing.

Now, it's far from an ideal solution. However, they’re often preferable over the intense damage of foreclosing.

In short, a homeowner facing foreclosure sells the home instead. They place their house on the market as a ‘short sale’ deal, and at a far reduced rate versus the property’s actual value.

That discounted price ensures a swift transaction; the money goes to the lender.

(As a quick aside, if you’re on the other side of the transaction, here’s some advice on buying a short sale property!)

Of course, the lender doesn’t get all the money they’re owed. But they are saved the hassle and expense of the foreclosure process. In addition, they no longer have to sell the house themselves, which can be a costly and time-consuming process.   

It’s worth mentioning that a short sale isn’t always possible.

Homeowners must get the go-ahead from the mortgage lender to proceed. An application can be put in, but there’s no guarantee it’ll be approved.

All things considered though, it’s arguably worth a shot. Speak with a professional for more advice on your individual situation.

5 Key Benefits of a Short Sale

Now we know what a short sale is, let’s turn to the benefits they provide.

It’s worth noting how short sales aren’t all positive. They have a host of downsides too that all homeowners should be diligent in considering. However, that’s a post for another time.

For now, here’s the good stuff:

1. Credit Score

A short sale will undoubtedly damage your credit score.

However, the impact will be nothing like what will happen after foreclosure.

Credit scoring companies don’t take kindly to failed mortgage repayments. Having your home taken away, as a result, can see your credit rating nosedive.

Of course, that has a host of negative implications down the line. For one thing, it’ll be far harder to buy a new house in the future. All loans will be more difficult to attain; those that you’re allowed will have costly interest rates attached.

The credit benefits of a short sale safeguard you from these negative outcomes.

2. It Isn’t a Foreclosure

This sounds painfully obvious.

But a short sale isn’t a foreclosure.

Hear us out: One of the greatest burdens of going through a foreclosure is emotional damage. Intense levels of shame are attached to it; people feel like a failure. Confidence takes a serious knock as a result.

Then there’s the inherent stress of the foreclosure process to deal with too.

It’s a vicious melting pot of negative emotions.

At a basic level, short sales feel different. You’re selling your home to repay your debt, and that’s that. Of course, it isn’t ideal. But the level of shame involved is avoided; the fall out is far less debilitating too.

3. Avoid Typical Home-Selling Issues

Selling a house is rarely a joyous endeavor.

For one thing, it takes time.

For another, there are masses of fees and costs involved. You pay out of pocket to sell your own property! These can stack up to considerable sums overall.

Short sales don’t suffer in the same way though. In this situation, the financial side of things is to take care of by the lender. They cover the estate agent commissions, transactions costs, and so on.

It’s a minor victory, but every little victory counts when you’re in this predicament.

Obviously, to go through this process your finances are unlikely to be in top shape; any financial savings will be a bonus.

4. Saves Money Overall

Foreclosure isn’t cheap.

The legal costs that are sometimes involved can rack up into the thousands of dollars.

That’s often unfeasible for homeowners in dire financial straits. Bankruptcy becomes the only viable alternative for many.

Short sales can prevent this outcome from happening. Indeed, we’ve already seen how the situation can benefit the original homeowner financially in other ways.

The new buyer takes over, absorbing some of the original debt.

5. Everyone’s Happier

We’ve already noted how the foreclosure is unideal for lenders too.

It’s a hassle they don’t want to have to go through. The process is long, expensive, and full of legal considerations. There are often court proceedings, coupled with a potentially difficult resale of the property.

That all adds up to time, money and a general struggle. No-one really wins when a foreclosure takes place.

A short sale saves everyone the trouble of going through with it. The lender is unlikely to be happy with the financial shortfall on the sale. However, the savings elsewhere will be valuable.

For that reason, it sometimes makes more sense (in terms of money, time and effort) for mortgage lenders to write off the deficit and grant a short-sale.

Time to Wrap Up

There you have it: 5 key benefits of a short sale to consider.

Nobody relishes the prospect of foreclosure.

It’s the most challenging eventuality for all home-owners to go through.

Thankfully, the national rate of foreclosure is going down. But that makes very little difference for anyone for whom it’s a reality.

As we’ve seen, for these people a short sale is often a preferable alternative. It’s far from ideal, and there are a host of its own implications to take into account. Overall though, short selling may be the answer to the problem.

Hopefully, this post has highlighted why that’s the case.

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