Realizing Home Ownership Again: Short Sale v. Foreclosure


Families who have gone through either a foreclosure or a short sale can testify that it is a daunting experience. In many ways, the two transactions result in similar frustrations and challenges to moving forward financially and realizing home ownership again. Each severely damages your credit and adds specific lengths of time before banks will lend to you again.

Unfortunately, in the last several years, too many families have had to face losing their home. There is a small glimmer of hope in the process. Recovering from a short sale or foreclosure can lead to homeownership again.


Difference Between Foreclosure and Short Sale

A foreclosure and a short sale are two options facing homeowners who are behind on their mortgages. These options surface after being several months behind and result in the homeowner parting with their home. 

A foreclosure occurs when the bank steps in and seizes the home, initiating the process of selling it. Typically the process involves the owner either vacating the property or being evicted. The bank focuses on securing a new buyer, which could be through the traditional selling process or in an auction. Once complete, a foreclosure stays on a person’s credit for seven years.

By comparison, the homeowner initiates a short sale to avoid a foreclosure. A short sale means the home is sold for less than the remaining balance on the mortgage. The homeowner secures a buyer for the home and then works to negotiate with the lender to accept the transaction.

A short sale is a complicated process that can take up to a year to be complete. While still damaging to credit, a short sale is less severe than a foreclosure. Both transactions stay on an individual’s credit for seven years, but after four years more options become available to families who went through a short sale.


Reentering the Market

Individuals or families who have gone through a short sale or foreclosure can purchase again. They are called boomerang buyers.

Families must wait four years after a short sale and seven years after a foreclosure in order to qualify for a conventional mortgage. Once this time period passes, two important things happen. First, the short sale or foreclosure is removed from the credit report. Second, boomerang buyers are reclassified as first-time buyers. This means that they qualify for different assistant programs, such as down payment assistance.

For families looking to own again, it is important to use this time period to recover financially and emotionally from the experience as well as to prepare financially for homeownership. This includes items such as repairing credit and saving up a down payment.

Working with one of our counselors can help you through the recovery and moving toward home ownership again.


FHA Back to Work Program

One government program provides a silver lining to what can only be described as a devastating experience. For families that underwent a foreclosure or short sale due to a great financial loss, such as losing a family member or a job, the FHA Back to Work Program shortens the waiting period to purchase to twelve months.

In order to qualify, families must meet the extenuating circumstances criteria for losing their home and work with a HUD approved counselor one on one for six months prior to applying with a FHA approved lender. These families will then be able to purchase twelve months after their short sale or foreclosure.


You Aren’t Alone

No matter what phase of recovery you are in, rebuilding after a short sale or foreclosure is an in-depth process. Know that you aren’t alone in that endeavor. We have counselors here to walk with you to move past losing a home and move toward your future goals. Regardless if your goals include purchasing again or reside with renting, let us help you throughout your journey.

If you aren’t ready to work with our counselors today but want to learn more about your options for homeownership, join our Home Buyer Workshop. We give you the tools to understand the entire process as well as evaluate where you are on the journey.