#negative equity

GH₵94bn Negative Equity: Is it time for the Bank of Ghana to think like investors or step too far? -

Selling an Underwater Mortgage Home: Short Sale vs Cash Buyer and Which Protects Your Credit Better

Facing an underwater mortgage—where you owe more on your home than it's currently worth—is one of the most stressful situations a homeowner can encounter. The thought of losing your property or damaging your credit can be overwhelming. Over the years, I’ve helped many clients navigate this tough terrain, and two options often stand out: a short sale or selling to a cash buyer. Understanding the pros and cons of each can help you make an informed decision that protects your financial future, especially with 2026 looming as a critical milestone for mortgage regulations.

Context and Background: Why Are Homes Underwater and What Are Your Options?

Homes become underwater due to declining real estate values, economic downturns, or changing personal circumstances. During the 2020 pandemic, many homeowners experienced this issue, and data from the National Association of Realtors showed that nearly 15% of U.S. homeowners were underwater at some point in 2022. When your mortgage balance exceeds your home's value, selling can become complicated.

For many homeowners, staying afloat feels impossible. Defaulting on a loan can lead to foreclosure, which damages credit scores significantly. But options like short sales and cash buyers offer potential pathways out. Each has its own impact on your credit report, financial stability, and long-term goals.

Understanding Short Sales and Cash Buyers: The Main Differences

What Is a Short Sale?

A short sale occurs when you sell your home for less than the remaining mortgage balance, with lender approval. The bank agrees to accept less than what you owe, forgiving the remaining debt. It’s a complex process but often a way to avoid foreclosure. Many lenders favor short sales over foreclosures because they’re less costly and quicker to process.

What Is a Cash Buyer?

A cash buyer is an individual or investor willing to purchase your property outright, without mortgage financing. This option is usually faster, often closing within a week or two, which can be a major advantage if you need quick relief. Cash buyers tend to purchase "as-is," meaning no repairs or cleaning are required.

Which Option Protects Your Credit Better?

Impact of a Short Sale on Credit

In my experience, a short sale generally results in less damage to your credit score compared to a foreclosure. According to FICO, a short sale can lower your score by approximately 75-100 points, but recovery can begin within a few months with proper credit management. The key is that a short sale is viewed as a negotiated settlement, which lenders often consider less damaging than foreclosure.

Impact of Selling to a Cash Buyer

When you sell directly to a cash buyer, especially if the sale is at or near market value, your credit remains largely unaffected. You’re paying off your mortgage in full, which can prevent further negative marks on your report. Plus, a quick close can limit the time your credit is impacted if you’re in default.

Which Protects Your Credit Better?

Overall, I believe selling to a cash buyer tends to protect your credit better, especially if you act swiftly. Unlike a short sale, which still involves negotiations and potential delays, a cash sale can close quickly, reducing the risk of additional credit damage. Moreover, avoiding foreclosure or prolonged default helps preserve other financial relationships.

Practical Tips for Choosing the Best Exit Strategy

If you’re underwater and considering your options, here are some practical steps:

It’s surprisingly easy to slip into a bit of a routine with car finance. Continue reading How To Avoid Getting Trapped In An Expensive Car Finance Cycle

Is Now A Good Time To Get A Mortgage?

With house prices in a state of flux, you might find yourself wondering is now a good time to get a mortgage? (more…)