A short sale would negatively impact on your credit score, but not almost to the extent that a foreclosure or deed in lieu of foreclosure does. This article will help give you some idea.
A short sale just suggests that your outstanding mortgage balance is more than the present market value of your home. Homeowners undergoing financial hardships and facing impending foreclosure frequently choose a short sale for the intention of preventing the foreclosure proceedings. At present, this is exactly the condition all over the United States, where the subprime mortgage market meltdown has resulted in a record number of foreclosures and substantially lowered real estate prices.
A short sale happens when the lender is ready to receive a lower amount than what you are obliged to repay them since you do not have adequate equity for selling the home and making payments for all the expenses of the sale. You must make it very clear that the lender should agree or you are unfortunate.
The Impact on Your Credit Report
The extent of damage caused to your credit report by a short sale is much less than a foreclosure. When your financial problems are sorted out following a foreclosure, it would take more time to reinstate your credit rating. On the whole, this is what takes place:
1) Mortgage Foreclosure or Deed In Lieu of Foreclosure
Frequently, this signifies a deduction of about 200-280 points from your FICO score. A FICO score of 675 can slump to as little as 395 and this basically hinders you from future credit sanctions. It might be as extensive as 7 years before you might be eligible for another mortgage loan.
2) Short Sale
You can anticipate that short sale would spoil your credit score, but not like foreclosure. You can lose about 75-125 FICO points and it would be demonstrated in your credit report enumerated as a “pre-foreclosure in redemption”, which is not so detrimental. It is most likely that you can obtain a new mortgage loan within 1½ to 2 years.
Whatever the case may be, it is always advisable to seek guidance from a CPA or tax accountant, an attorney or a realtor who has a lot of knowledge on short sales. They might ask for some fees, but their advices can help you save a lot. Therefore, don’t go alone. Always seek assistance.
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I never knew this kind of thing was so complex :S
Thanks for posting about this, I would love to read more about this topic.
Short sale and Foreclosure effects on credit, its true If you’re a seller trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging your credit may not be an advantage to doing a short sale, according to “Score Factor Code #22, there’s no credit score advantage for a delinquent borrower on a short sale over a foreclosure.”
You are absolutely correct that a short sale is better than foreclosure. Many people wrongly assume, however, that just because they are upside down on their mortgages they can apply for a short sale and the bank will approve it. The banks are actually very tough on home sellers seeking short sales. They require serious hardship (such as divorce or job loss) and proof that the home seller has little or no assets. When it comes right down to it, the loss mitigation departments at the banks are just debt collectors by a different name. If the seller has any assets, they will squeeze them until they pay all they can. But if you are unsure, try short sale first. At the very least it will delay foreclosure and possibly give the seller time to negotiate for a loan modification.
Geoff@San Diego Foreclosures´s last blog ..MIA San Diego Foreclosure Properties
A short sale is a win-win situation for the most part for both the lender and the home owner. Much better then going into foreclosure.
Seeking guidance from a CPA or a tax accountant is a great idea. Mortgage Foreclosure are extremely complected. Thanks for posting this information.
Madcap@credit restoration´s last blog ..Do Follow Blog Comment Luv
A bad credit score can affect your life in so many negative ways! I keep a pretty close eye on mine.
Keeping an eye on our credit scores is the best thing a consumer can do in these volatile financial times. I just went to Annualcreditreport.com to check my report. Knowing what’s on there is the best defense we have to maintaining our credit.
Most likely people do not have these data about the credit score. But it is always better to try to keep the house. There are possibilities out there. So if you do keep the house it is much more better for your credit score.
If you are faced with a situation like this the short sale is the best choice to proceed to make sure you are better off financially and not have your credit score damaged as much but in situations like this people do worry too much and expect the foreclosure to be their only option. If a person is in a bit financial trouble it is always best to check with your bank what is a good course of action and ask a financial advisor what can be done.
chris@mortgage info´s last blog ..100 Mortgage Financing – No Money Down Programs
You know whats interesting about all this is the Government has been bailing out the Banks but the people who they lent to are left to suffer with the loss of their home and a lower credit score.
Homeowners Insurance Site´s last blog ..Save Quickly on Homeowner Insurance
Thanks for the information, this topic is relevant for me today