Short-Sale:

This situation involves selling your home in the market for less that what you owe to the bank. For example, you owe $225,000 on your home, but in this market, you can only achieve a sales price of $200,000.

Please know that this type of sale is generally only achieved when there is some sort of hardship involved…you have lost a job and cannot make mortgage payments, you are going through a divorce and a spouse stops helping pay with the mortgage and you cannot make payments on your own, you have a disability that has caused you to no longer be able to work and bring in an income, your mortgage has been to much to bear, or your rate adjusted, payments went up and you cannot pay them anymore, etc.

This process is achieved with bank approval. This type of sale, just as a foreclosure, does take your credit score down dramatically. The advantage to this type of a sale, versus a foreclosure, is that the banks will often completely forgive the difference in the amount you owe to the bank (including realtor fees, attorney fees, etc.).

What this means for you is then that you can work on your credit again, and feasibly become a homeowner within fewer years. It also means that the debt can be completely forgiven, not to be held against you at any point in the future ( a big plus!). You can live in your home during this process.