The Truth About How a Short Sale Will Affect Your Credit Score

Certified Distressed Property Expert

So exactly how will a short sale impact your credit score?  The short answer is a short sale can have less of an effect on your credit score than a foreclosure. But, it must be done correctly.

Should I do a short sale?

Short sales can happen if a lender agrees to accept less than the amount owed against the home because there is not enough equity in it to pay all costs of the sale.

Firstly, it’s important to get legal and tax advice before making any decision. A real estate agent experienced in Orlando short sales can be of invaluable help to you as you negotiate with your lender. It’s important to note that not all lenders will agree to a short sale.

Although there are a few lenders that will agree to a short sale if the homeowner is current, most lenders won’t even consider a short sale unless the mortgage holder is at least 30 days behind on their payment.

What tips should I know for negotiating my short sale.

When negotiating a short sale it’s important to be aware that there is no guarantee that the lender will accept the short sale offer. You should also know that short sales can take several months to complete sometimes depending on who the lender is.

If the lender does not agree to a short sale there are other options available to the homeowner such as a “deed in lieu” which is basically a voluntary foreclosure in which you sign the property back over to the bank.

Other options include trying to negotiate a loan modification or filing for bankruptcy. If neither of these options work than the property will most likely be foreclosed on and sold at public auction to the highest bidder.

If your request is approved, ask your lender to report the short sale as “paid in full,” as part of the negotiation.

So what’s the impact on my credit score?

Many sources report that a short sale has about the same impact on your credit score as a foreclosure when the seller is in arrears; however, that’s not always the case.  With some short sales, sellers report that their credit score only dropped by 100 points.

The biggest advantage of a short sale is that you will be able to qualify to buy another home within two years as opposed to five to seven years after a foreclosure.

Talk to an Orlando real estate agent experienced in short sales to discuss the possibility of doing a short sale of your home.

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