In a short sale, a homeowner sells their house for less than the outstanding balance of the loan. At the completion of the sale, the lender will get all the proceeds and forgive the loan balance. While the lender loses money on the loan, it will typically be less that it would have been through a loss through a foreclosure, which lenders estimate to cost them around $50,000.

The seller loses money but avoids credit damage of a foreclosure. The seller will need to prove hardship to get a lender to agree to a short sale.

Lenders can take 45 to 60 days to accept a contract and can make buyers very anxious for the deal to close.

The short sale will affect your credit for about four years, which is 3 years less than a foreclosure will stay on your credit report.

PROS and CONS:

Seller

• Upside: Avoids damage to credit from a foreclosure
• Downside: Loses home and slightly hurts credit score

Lender

• Upside: Avoids the expense of foreclosure (estimated at $50,000) and keeps the bad loan off the books.
• Downside: Loses some of the principle and interest from the loan.

Buyer:

• Upside: Gets good deal on home purchase
• Downside: Usually must wait 45 to 60 days for seller’s lender to approve