A short sale will negatively affect your credit, but not nearly as much as a foreclosure or deed-in-lieu ~ read this entire article for details on each alternative.
A short sale simply means that the amount of the mortgage balance owed is greater than the current market value of your home. Homeowners who are in financial difficulties and facing foreclosure often opt for a short sale in order to escape the foreclosure process. This is precisely the situation now across the United States where the sub prime adjustable rate mortgage mess has caused mass foreclosures and significantly reduced the value of real estate.
A short sale takes place when the lender agrees to accept less than the amount you owe him on your mortgage because you don’t have enough equity to sell the home and pay all the costs of the sale. And make no mistake, the lender must agree or you’re out of luck.
the effect on your credit report
You will suffer much more damage to your credit report with a foreclosure than you will with a short sale. It will also take considerably longer to restore your credit rating once your financial difficulties are resolved. In general, here’s what happens:
For a Foreclosure or Deed-In-Lieu of Foreclosure
- Expect about the same things to take place. Quite often this means a loss of between 200-280 points on your FICO score. A pre-foreclosure FICO of 675 could drop to as low as 395, essentially eliminating you from future credit approvals. It may be as long as three years before you can qualify for another home loan.
For a Short Sale
- Expect to suffer some credit score damage, but nowhere near as much. Loss of FICO points will be around 75-125 and your report will show it listed as a ‘pre-foreclosure in redemption’ which is far less negative. You will most probably be able to secure a new home loan in about a year and a half.
In any case, it is a good idea to consult with a lawyer, tax accountant (CPA) or a good real estate agent who is experienced with short sales. These professional may charge you a bit for their services, but failing to have the right counsel could end up costing you a sizable bundle. So don’t consider going it alone. Get the help you need.
Know Where You’re At
NOTICE: Don’t get your credit score from anywhere else except myfico.com. They have real scores here, not the fako crap that many sites give you. These are the real deal.
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From my blog here I’ve developed an extensive network of real estate agents that have short sale experience. If you’d like a referral, fill out the form below and I’ll have someone available in your area to help with your short sale ASAP.
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I need some advice on a rental property that i have. We lose 300 a month on it and we don’t know what to do with it. It is in a really bad area and a bad school district. We moved here from new york and did not know what we were getting ourselves into. We just bought a new house. Any ideas that will not kill my credit???
I live in California and did a chapter 7 bankruptcy in Oct 2008 which was discharged Feb 1, 2009. I listed my only real property in the bankruptcy, my homsteaded principal residence. I owe about $120,000 on the property which is currently valued at $90,000. The loan was serviced by Washington Mutual and is currently serviced by Chase. I have stayed in my residence and continued to make my payments. After the bankruptcy my credit score went down to 645. I was told I couldn’t get another federally insured loan (or any loan) until Feb 2011. The property is no longer listed on my credit report. I would like to buy another residence at a REASONABLE price at that time. The question is : what are my rights? If I don’t make my payments do they even need to foreclose or would this just be a formality? Under these circumstances would a short sale even be appropriate since the $120,000 debt was discharged in the bankruptcy and a reaffirmation agreement was never signed? Does anyone have any ideas…..HELP!!
Hi, this is some good info here. Thank you Dean for your responses. My wife and I currently own a condo and owe 338k in southern CA. The current value has it at about 250-260k. My wife lost her job (we are both teachers) and without unemployment I don’t make enough to cover all of our bills mortgage included. We are thinking of a short sale. I have spent years building excellent credit, I am at 819 fico score. But to be honest the prospect of being 80k in debt on a condo that we soon cant afford seems worse than losing some credit points. My credit will rebuild quicker than the equity in our home.
My main question is three parts:
1. I own an investment property in Florida that still has equity. What would happen to that in a short sale? Should I try to move that? Possibly get my parents involved and sign it over to them? That is costing me about $360 per month to hold on to that.
2. We have about 20k in savings that we were saving for a downpayment on a new home or to use for emergencies. Would the bank go after that? Would that entice them to allow us to do a short sale? I would hate to lose that money.
Thanks in advance for advice.
My fiancee and i were talking the other night about where we want to live after marrying and he told me he would probably go for a short sale. What happens if i marry him before he does that? Would that affect my credit???
Thanks
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