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Short Sale Information

Short Sale Articles

Credit Report

The effect of short sale on credit report ratings has been widely discussed between agents and homeowners alike. The simple answer is that it does affect your credit score; perhaps a better question would be in what way, how much, and for how long. The answer varies from case to case, so the best thing to do is to assess your situation and decide whether or not a short sale will work for you. To help you out, here’s a quick guide to short sale and credit report effects and how they can affect you.

Credit Score Changes

Score declines are perhaps the most common effect of short sale on credit report ratings. After a short sale, your score can drop by as little as 30 points or as much as 300. Exactly how much it falls depends on how many payments you’ve missed, whether you were at risk of foreclosure, and the difference between the selling price and the amount you owe. In any case, it’s still less drastic than a foreclosure, which can pull your score down by up to 400 points.

Public Records

Short sales appear on public records for five to seven years, whereas a foreclosure stays on your file for up to ten. What appears on your credit report depends on how your lender forwarded the data to the credit bureaus. Most banks report short sales as pre-foreclosure in redemption, which will have a significant impact on your score. However, a few banks will report it as paid-settled, meaning they simply considered your debt paid. In this case, the effect of short sale on credit report will be less severe.

Post-short Sale Mortgages

The relationship between short sale and credit is more important for those who plan on buying a new home afterwards. Under certain mortgage servicers, you can only apply for a new mortgage at least two years after the short sale. But even if you’re allowed to buy a new home the day after, it’s advisable to wait the two years—or whatever time it takes for your credit to regain its rating and get more reasonable terms. Again, compared to a foreclosure, short sale effects in this case are minimal, as you often have to wait three years or more to buy a home after your home is seized.