How Does Short Sale and Foreclosure Affect Your Credit Score? Well, the Credit Impact for a Foreclosure vs Short Sale can be dramatically different.
When property owners fall behind on their mortgage payments they are faced with the decision to try a short sale or just let the property go to foreclosure.
For more info, take a look at this other post we did on: “What is a short sale?”
Below are some points to think about when dealing with this subject.
If you are wondering whether missing mortgage payments and selling your property for less than the full amount you owe on it(short sale) will hurt your credit score, the answer is yes.
HOWEVER, that being said, the credit damage done by a short sale is significantly better than a Foreclosure or Deed in Lieu. In a short sale, it does not show up on your credit report as long nor is the impact as severe as a foreclosure.
Take a look at some of the most common questions….
When will I be able to buy another house? (Primary Residence)
Short Sale: Homeowner is eligible for re-purchasing in 2 years
Foreclosure: Homeowner is eligible for re-purchasing a primary residence in 5 years
When will I be able to buy another property? (Investment Property)
Short Sale: Homeowner is eligible to purchase an investment property after 2 years
Foreclosure: Homeowner is eligible to purchase an investment property after 7 years
On future loans will I have to disclose what happened with my house?
Short Sale: There is no disclosure required for a short sale
Foreclosure: On any future loan applications (1003 mortgage) when they ask, “Have you ever had a property foreclosed upon…” you will have to mark YES, affecting what programs will be available to you and interest rate that you would qualify for.
How will my Credit Score be affected?
Short Sale: Only late or missed payments on the mortgage will show up as derogatory items on the credit report. After the sale is completed the mortgage will report as paid or settled. Short Sales can affect your score differently depending on how many payments are missed, sometimes as little as 50 points. A short sale will have an effect on your score for approximately 18-24 months.
Foreclosure: The credit impact of a foreclosure is MAJOR and can reduce your credit score anywhere from 250-300 points and stays with you on your report for 7-10 years.
How will my Credit History be affected?
Short Sale: Short sales are currently NOT reported in the credit history of a credit report. The loan is generally reported as “paid off, settled”
Foreclosure: A foreclosure will remain as a public record on a homeowner’s credit history for 7-10 years, sometimes even longer.
For more info check out Fannie Mae’s guidelines: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf
If you would like more Free information on Short Sales and foreclosures, please contact us anytime.
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