A “short sale” is an alternative to prevent a foreclosure. With approval from their lender, it gives a homeowner an option for selling their home for less than the mortgage balance. In essence, the short sale lets you walk away from a mortgage you can’t afford to pay with no further obligation to the lender.
As good as it may sound, it will have a lasting effect on your credit rating. Generally, the typical waiting period before you can buy a home after a short sale is about two years – provided that the short sale was for extenuating circumstances such as a death in the family, an illness, a serious accident or a job loss or job transfer which prevented you from making monthly mortgage payments. Without a sufficient reason the wait can be longer.
By comparison, in a foreclosure, you are responsible for the difference between what you owe and what the home sells for. Plus… you probably won’t be able to buy another home for at least seven years. Foreclosure is a long, drawn out process that sometimes takes years to complete.
A short sale takes less time and banks are usually willing to waive some of the debt rather than be part of a lengthy and costly foreclosure process.