Today's Lake Havasu real estate market sends buyers scrambling to find homes to buy. It's definitely a seller's market. Even so, we still see some homeowners struggle to make their mortgage payments. When that happens, you have four options to choose from: short sale, foreclosure, loan modification or just walk away. Before the last option becomes your final choice and if your credit isn't up to snuff for a loan modification, consider the other two alternatives. First, you'll need to know the difference between a short sale and a foreclosure in order to make an informed decision.
Short Sale vs Foreclosure
What is a Short Sale?
First things first. Whichever option you choose, your credit will suffer. However, with a short sale, you recover from it much faster. In fact, you might even be able to purchase another Havasu home almost right away...as long as your credit allows it. A short sale also prevents you from sending your home into foreclosure.
When your home is worth less than you owe and you can't afford to continue making your mortgage payment, you might want to consider a short sale. The homeowner asks the lender to forgive part of the debt in order to sell the home. Unfortunately, this also takes longer than a traditional sale (typically around 90-120 days but can last up to a year). This might not be the best option for a first-time homebuyer looking to get into a property in a shorter time frame. But it's also great for an investor because they can get into a home at a lower price point than some of the others on the market.
What is a Foreclosure?
With foreclosures, you face another set of hurdles and restrictions. While they tend to sell faster than short sales, they also cause the most damage to your credit. A foreclosure stays on your credit report for seven years. And you have to wait at least five years to purchase another home. On a positive note, that does allow you to build up your credit score, pay down debt and save money for another down payment.
Lenders begin by trying to auction off foreclosed Lake Havasu homes. That's not always the best option for buyers because these properties are sold sight unseen. You aren't allowed to perform any inspections on the property before you put in a bid. You receive it "as is"; no warranties, no guarantees. However, you might end up buying it below market value. If it does not sell through an auction, the bank retains ownership as an REO (real estate owned) property. When they put it on the market as an REO property, then you can perform an inspection.
Which is Better: Short Sale or Foreclosure?
So, if these are your two options, which is the better way to go? Whether you choose short sale or foreclosure, your credit will take a hit. With a short sale, it's less so. For buyers, either option provides a price advantage. Contrary to the name, short sales take longer to complete than foreclosures. When you fall on hard times and cannot keep up with your Lake Havasu mortgage payment, talk to your lender about your options. They want to help you stay in your home if at all possible. They'll be happy to explain every choice you have available to you so that you can come to an informed decision.