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Short Sale Information

Short Sale Articles

Credit After Short Sale

These days, one of the first questions a homeowner will ask before a short sale is: Will it affect my credit? And more often than not, they get different answers from different sources. In a nutshell, yes, a short sale does affect your credit. What this effect is and what it means for you depends on your particular situation, your lender’s policies, and your initial credit standing.

Your Credit Score

Obviously, the first effect on your credit after short sale is a drop in the scores. You can lose as little as 30 points or as much as 300. But before changing your mind, here’s a bit of perspective: a foreclosure pulls down your score by 300 to 400 points, while bankruptcy normally carries a 270- to 400-point drop. So after short sale credit is still a step ahead, especially since it’s faster and less stressful than both alternatives.

Reporting the Sale

Some banks didn’t even use to report short sales—they just marked the mortgage off as forgiven, so it’s only the default that affected the credit. However, most lenders now follow a standard wherein a short sale is reported as a “pre-foreclosure in redemption.” Basically, this tells the bureaus that you were already in pre-foreclosure (as is often the case with short sales) when the transaction was made. This, along with your missed payments, accounts for much of the point difference in credit after short sale.

Clearing the Record

The short sale will stay on your credit report for around five years, while foreclosures and bankruptcies spend up to ten years on your file. Needless to say, this can greatly affect your after short sale credit plans, whether it’s a small personal loan or a new mortgage. That’s why experts recommend adopting healthy credit practices after any loss mitigation deal—it helps you improve your credit after short sale and make up for the damage fast.

Buying a New Home

Another advantage of short sales is that the wait times are shorter for those who eventually want to buy a new home. Your credit after short sale will allow you to get a new mortgage after about two years, whereas you have to wait three or more after a foreclosure or bankruptcy filing. While you can get a loan sooner, after short sale credit scores won’t command reasonable interest rates until after the set time frame.