The following blog post is being reprinted from Short Sale- How Will it Effect My Credit. As a Massachusetts Realtor who is heavily involved in short sales, many sellers want to know what effect a short sale will have on their credit.
The effects of a Short Sale on Credit Scores
Unfortunately a short sale will effect your credit scores. Make no mistake, the “ding” to your credit score can be very minimal (50 points) to much higher (150 points or more). This is also the case in a deed-in lieu of foreclosure. While a short sale can have less of or the same impact as a foreclosure on your credit, it has the benefits to your future financial health. Please do not think a short sale will not effect your credit it will and it is irresponsible for someone to tell you otherwise. Remember the how the short sale is reported can effect your credit score but equally important is how many late payments did you rack up while going through the process of a short sale.
There are many variables to how much your credit score will be impacted by a short sale. The number of rolling late’s on your mortgage how your mortgage company reports the short sale to the credit agency as well as what your original credit score was. It appears that the higher your score the harder your hit. These will be some of the factors in determining how much of an impact a short sale will have on your credit.
A key point to remember is, that many times, while struggling with your mortgage, you may be experiencing trouble with other lines of credit. Every late you may have on credit card, car or student loan payments or any other line of credit, will impact your credit score. The more late payments, of any type, that is reported to the credit bureaus, the more impact it will have on your credit score. Many times by the time you are considering a short sale, a home owner will have already have had some serious impact to their credit score.
There is one significant difference between a foreclosure and a short sale. A foreclosure stays on your credit for 7 years. While your credit score may improve over time with both a short sale and a foreclosure, the foreclosure will be reported as a foreclosure and when applying for a mortgage and some other lines of credit they do ask the question if you have ever been foreclosed upon. A foreclosure may impact your ability to get future credit in the intermediate term.
So, yes, a short sale will effect your credit, how much depends on many factors.
The bigger question to ask yourself is do you have another alternative? For many underwater home owners a short sale may be the best and only alternative to an imminent foreclosure. And, while yes, a foreclosure effects your credit there are other advantages to a short sale that makes it a better solution to a foreclosure. Here is a recent article I wrote, Considering a Short Sale.
In a nut shell, if you are facing a future foreclosure and you see no way to stay in your home or it is not financially practical to stay in your home, a Short Sale is probably your best option, irregardless of the impact on your credit score.
Other short sale articles:
Considering a Short Sale
How Does a Short Sale Effect My Credit
Tax Consequences of a Short Sale
Should I stay in My House During a Short Sale
The Deficiency Balance
When Should I consider a Short Sale?
Who Pays the Fees in a Short Sale?
Chasing the Loan Modification
This post was printed by Kevin Vitali of EXIT Group One Real Estate. If you are struggling with your mortgage call Kevin at 978-360-0422. Kevin can answere your questions and help you decide what route may be best for you and your family.
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