Answer: Short Sale. Your credit improves far faster: 2 to 3 years versus 7 to 10 years. That may not seem like a big deal when you are upside down and buried in debt, but someday in the not so distant future you are likely to want good credit again.
Your credit score is an indication of your willingness to pay back the loan. It is a measurement of risk for lenders. It is also considered a measure of your character. Your credit score has nothing to do with your income level or even your debt to income ratio. It is not about race, gender, or other demographics. It is simply an indicator of your willingness to repay debts.
The economy has a way of turning around. Our lives have a way of turning around. You are going to want to buy a new car or something in the near future. A short sale will get you back in a position to do that much faster.
As always, research your options with knowledgeable attorneys, financial experts and Realtors. Everybody is different. Some people might be better served with a deed in lieu or even a bankruptcy, but a short sale is usually best for the vast majority of underwater / upside owners.
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