Short Sale Vs. Foreclosure

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?

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.


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.


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