Reader’s Question
Hi Ashley,
If you sell a property using a short sale, how does this affect your credit score? How many pionts will it reduce your score? Would I be better off credit-wise by just letting the house go into foreclosure?
Thanks!
My Response
Dear [name removed],
A short sale will destroy your credit — anywhere from 50 – 100 points. A short sale won’t hurt your credit as bad as a foreclosure but the difference isn’t that much. If you can get the lender to do a short sale, I would do that.
-Ashley
Take Home Point
A short sale is when a mortgage lender agrees to basically lower the amount due on a loan. This usually happens when the amount due is more than what the house is worth and the homeowner is unable to pay their mortgage . When this is the case, the lender lowers the loan amount so the home owner can sell the home for market value. You might be asking yourself, why would the lender do this? Well, they do it to avoid a foreclosure. Keep in mind that in the event of a foreclosure, the lender would then be responsible for selling the house and even then, they are likely only to get market value for the house. Therefore, a short sale will in the end cost the lender less than a foreclosure.
{ 5 comments… read them below or add one }
In the mortgage lending industry, any mortgage account that goes more than 90 days late is viewed by the lending institutions as a foreclosure…regardless of whether the home is actually saved or sold at an auction. Ninety days late equates to a foreclosure. Many times homeowners will argue their home didn’t actually foreclose because the mortgage was brought current. However, in terms of borrowing money, if a mortgage goes over 90 days late, then a foreclosure has occured. Although the longer the mortgage goes uncurrent the greater the effect on one’s credit and because a foreclosure could potentially last for an unknown amount of months, short selling the home makes more sense and follows financial literacy principles. However, the sooner the a decision is made to short sale a home the greater the chances of receiving the full credit profile benefits of short selling, which include a shorter time in a delinquent mortgage status and the absence foreclosures on your credit reprot.
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Great articles & Nice a site
A short sale will not “destroy your credit”. 50-100 points is completely recoverable. A foreclosure will in contrast will have a huge impact. 250-300 points is what I’ve reasearched. And any missed mortgage payments during the short sale process will hit you hard too. You’ll lose 65 points, or more, just on your first missed mortgage payment. Here’s the deal, there’s a lot of misinformation online and personal opinions. Your best bet is to research hundreds of sites and find your answer that way. Don’t trust ANY one site or source.
Can a credit repair service or attorney have these short sales removed off of your credit or at least lessen the impact?