Hereâ€™s what you can expect for your credit scores - your scores will definitely tumble, just as if you were being foreclosed on, this is because most times lenders will not consider your file for short sale approval unless you are delinquent on your mortgage, or you will already be delinquent on your mortgage and must proceed with a short sale in order to avoid a foreclosure.
With every missed and delinquent mortgage payment (and short sales take time so you may have 4-8 or even more missed payments) you can expect your scores to generally fall 30-40 points with each passing month. This can wreak real havoc on your scores and even cause other creditors to reduce or even repeal your accounts â€“ this is especially true of credit card accounts.
So generally speaking, your credit score will be just as badly affected by a short sale as by a foreclosure.
The main difference is how fast your credit will be able to recover after the short sale has been completed.
Hereâ€™s an important point to consider, the key to rebuilding your credit after a short sale (or even foreclosure) is to keep on top of all your other credit accounts â€“ be sure you pay everything else on time. Your credit scores are calculated based on an aggregate of all your account activity, so if you keep your other 3 credit card accounts, 2 student loans, and 1car payment in good standing, then your credit will be able to quickly heal itself.
Short sales also have different long-term repercussions on your credit than a foreclosure. With a short sale the lender will most likely report your debt as â€œsettled for less than full.â€ But this will be dramatically better than having a fat â€œforeclosureâ€ showing on your account as reason for settlement.
If you are thinking about purchasing another home in the future, Fannie Mae and Freddie Mac (and even FHA) will require that you wait at least 2-3 years before they will allow you the financing to purchase another home, compared to 5 -7 years after a foreclosures.
And another thing to consider - Be sure to protect yourself and seek professional assistance regarding possible income tax implications or legal issues. See my blog post on short sale risks here: http://www.eaglehomegroup.com/ShortSaleBasics
Hope this helps!
The good news is that a short sale is better than foreclosure. If you allow the bank to foreclose you'll not be able to buy a new home for five years. With a short sale it is only two years.
See below great article in WSJ.
John & Sarena Villaescusa
Keller Williams Realty
I have had some short sale clients not recognize any hit on their credit but the majority have seen anywhere from 30-100 point hit. It depends on the lender and the reporting. It is hard to believe it will not be noted on your credit report but it has happened. The exact hit is hard to predict.