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The disadvantages and advantages of a short sale

The advantages and disadvantages of a short sale should be understood before you ever decide to move forward with one. Short sales are usually only allowed when a person is in debt to a mortgage lender for an amount the home is no longer worth. That person tries to sell the home for as much as possible, and then the lender discharges an agreed amount of debt following the sale.

The short sale can only take place if a borrower shows that he is suffering from a hardship of some kind. This may include unemployment, illness or divorce, for instance. Most of the time, the person must be in default before the lender will accept a short sale, but some will allow you to do so if you can prove you'll soon fall behind on your payments.

The major advantage of a short sale is that the person selling won't end up with a foreclosure on his record. Sometimes, lenders even offer cash incentives to those who complete a short sale as an incentive to help the borrower start over.

The downside of a short sale is that it still affects your credit score, although it won't be as severe as if you had a foreclosure. While you'll be out of debt following the short sale, you also won't have a home and will need to start over with a lower credit score that could potentially make it harder to get a new mortgage. Lenders who see you had a short sale in your record may also not want to lend to you. Your real estate law attorney can advise you further on the pros and cons, given the particulars of your situation.

Source: realtor.com, "What Are the Advantages and Disadvantages of a Short Sale?," accessed Feb. 25, 2016

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