When considering a short sale, one common question that many homeowners will ask is: How will a short sale affect my credit score? It’s a very understandable and real concern. So in today’s article from The Short Sale Gal Kristine Zelazo, we’ll explore precisely how a short sale affects credit rating and how you, as a consumer, can bounce back from this type of financial situation.
What is the Impact of a Short Sale on Credit Score?
Credit scores are calculated based on a lot of data, including factors such as the timeliness of your payments, the number of missed or late payments, your debt to income ratio and other factors. Most homeowners who pursue a short sale are experiencing financial distress and many choose to go down this path are hopeful that they can minimize the affect of a short sale.
Unfortunately, the reality is that a short sale will affect your credit rating in an adverse way. But the impact is less than what you would see with a foreclosure, since a foreclosure is a far more drastic course of action and it usually entails a greater degree of “delinquency” on the part of the borrower — but not always.
According to some sources, a short sale can cause your credit score to drop by as much as 160 points, but the precise amount of damage heavily depends on your credit standing before the short sale and how much your lender gets in the sale, among other factors.
And while some homeowners can avoid some of the damage that they would experience with a foreclosure, in other cases, the damage may be comparable. According to a FICO study, both short-selling and foreclosing on your home can cause a score of 780 to drop as low as 620, while a score of 720 can fall to 570 and a score of 680 can drop to 575.
How Will the Short Sale Appear on Your Credit Report?
If you sell your home in a short sale, the transaction can be reported on your credit report in a number of different ways. The short sale could be reported as a charge-off, a settlement, a deed-in-lieu of foreclosure or “settled for less than the full amount due” on your credit report.
It’s also important to remember that any late payments that preceded the short sale will also have a negative effect on your credit, which is separate from the damage caused by the short sale. This is one area where you can see less damage with a short sale, as not all homeowners who pursue a short sale are delinquent on their loans, whereas foreclosure only occurs after several months of missed payments.
Also remember that you will have a deficiency judgment on your credit report in addition to the short sale, potentially compounding the damage to your credit rating. Occasionally, a lender will agree to report a short sale as “paid,” which will not affect a credit score negatively – but this is rare and takes some tricky lender-borrower negotiation. But if you have the patience and the opportunity, it is worth trying to negotiate this arrangement.
How Long Will a Short Sale Stay on My Credit Report?
Like a foreclosure, a short sale is considered a “derogatory” event and as such, it can remain on your credit report for up to seven years. Fortunately though, you can see some recovery after the two year mark, as the credit reporting agencies and lenders alike tend to place much greater emphasis on the past 24 months.
Even so, it can take time for your credit to recover following a short sale, but most find that they are not in a position to buy another property for several years, so the harm to the credit rating is not of such a serious consequence since you’re not going to be going on the hunt for a new home straight away.
Ready to Sell Your Home in a Short Sale?
Based in Florida, Kristine works with both buyers and sellers and she is an experienced negotiator. So if you’re an investor seeking to get started in buying short sales and need a great mentor or wish to pursue a short sale transaction for the sale of your property, turn to Kristine Zelazo, the Short Sale Gal!
If you’re getting started in real estate, consider working with a real estate investing mentor like The Short Sale Gal, Kristine Zelazo. Getting started in real estate investing can be somewhat challenging, but when done right, you can stand to make significant profits. You’ll have lots of advantages in this regard when you work with a real estate investing and short sale expert like Kristine Zelazo, better known as The Short Sale Gal.
Kristine has even launched a new program, called The Bird Dog Program, which is designed to help individuals get involved making money on real estate deals and short sales.
To get started with selling your home, simply complete the home pre-sale form to provide Kristine with additional information on the property in question. Then, call 800.664.0616, x802.