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Short Sale Information

Short Sale Articles

Credit Short Sale

Short sales have helped thousands of homeowners avoid foreclosure since the start of the real estate crisis. But it’s only recently that we’ve started making the connection between a short sale and credit scores. Is a rating drop a small price to pay for avoiding the stress of foreclosure, or are short sale sellers being unjustly punished? How can you reduce short sale credit damage? Short Sale Credit.net offers a variety of guides and articles to help you find answers. To get you started, here are some of the basics on short sale and credit and how they can affect you.

What is a Short Sale?

A short sale is a form of loss mitigation in which a bank agrees to take a discounted payoff on a mortgage so that the borrower can sell off the home for less than what he owes. Usually, this lets the borrower off any obligations and allows him to start rebuilding his credit immediately. Short sales work best for people who owe more on their home than it is worth, who can no longer afford to live in their homes, or who are seriously at risk of foreclosure.

Why do Banks Agree to Short Sales?

Foreclosing on a home is as tedious and costly to a lender as it is to a homeowner. The main reason a short sale makes sense to a lender is that it costs less to them than a foreclosure, both in terms of time and money. A short sale allows them to get rid of a non-performing mortgage without going through the lengthy process of a foreclosure.

How Does it Affect Credit?

On average, short sales credit damage ranges from 30 to 200 points, while foreclosures pull one's score down by at least 300. It mostly depends on the borrower's situation, particularly the default which prompted the short sale. In fact, there's very little connection between short sale and credit ratings - the drop results more from the missed payments than from the short sale itself. Since one technically doesn't have to be in default to apply for a short sale, sometimes there’s little to no short sale credit damage at all.

Can I Minimize Short Sale Credit Damage?

Understanding the link between short sale and credit is the first step to reducing the damage. Call up your lender and ask how they treat short sales, particularly in terms of reporting to the credit bureaus. Some lenders require you to be in default before applying; if this is the case, make the application as soon as you're eligible so you can stop the drop before it becomes too drastic. Finally, work with a professional specializing in short sales and credit - you'll not only get it done faster, you’ll also find ways to get what you need with as little damage as possible.