If you have seen the the terms “short sale” and “short payoff” used together, there’s actually one very distinct difference between the two. In both instances, the value of a property has substantially dropped and the buyer wants to find a way out of the mortgage. The lender then gives special permission for them to sell the property for less than what’s owed.
Short sales, however, are your best financial option if you don’t have the ability to pay your mortgage or you’re facing foreclosure. Short payoffs are best if you aren’t having any trouble paying your debts but the house has lost value to the point where it’s impossible to sell.
Here’s a great example of a short payoff. Let’s say a borrower owes $140,000 on a home that’s now only worth $100,000. The bank can choose to accept a lower offer (or a more fair offer), such as $95,000, for a purchase of the house.
Short payoffs are only an option if you have a steady income, great credit and have demonstrated the ability to pay off your debt. Your mortgage must also be up to date. Because not all lenders allow short payoffs, it’s best to call ahead to get more information. Sometimes short payoffs are difficult to negotiate, but as long as you’ve proven yourself to be a reliable borrower, the process should be a smooth one. And unlike a short sale, you don’t have to provide proof of hardship!
The upside of a short payoff is that you can protect your credit and you can still purchase another property later on without penalty. There should be little or no damage to your credit report. It’s also a great option for families who aren’t very attached to the house and would rather move away.
