Short Sale Credit Impact
It is commonly known that a short sale is better for your credit and financial situation over a foreclosure. In addition you have the chance through a short sale to receive relocation assistance much greater than any amount you “may” get for cash for keys after a foreclosure.
In regards to your credit score, the negative credit impact of a short sale is much less than that of a foreclosure and as such is preferred over a foreclosure for many reasons. A short sale will not appear as a public record foreclosure on your credit report which will stay there for 7 years, and therefore only the previous delinquency on your mortgage will appear. Most mortgage lenders once the short sale has closed will report the loan as “paid in full for less than the full balance.”
How Does A Short Sale Affect A Credit Score?
The most significant short sale credit impact comes from the presence of the delinquent payments; 30 day, 60 day, 90 day, 120 days plus. Once the short sale is approved and it closes those delinquent payments will cease to be posted and as time goes on will slip further into the past and in turn your credit score will start to go back up. There are many factors that affect credit scores, but if the only item on your credit that you are delinquent on is your mortgage once that is resolved you can see how your score would improve.
After a short sale is reported on credit, a borrower may limit the drop on his/her score by maintaining all other accounts, such as loans and revolving credit accounts, in good standing.
The lender will report the transaction to the credit bureaus as a short sale without a deficiency balance, and this has less of a negative effect on your credit than a foreclosure would.
How Long After a Short Sale Until I Can Buy a Home Again?
As of 2013 the current wait times to buy again after a short sale are as follows; this information is subject to change as lenders change their policies but has been consistent for several years now:
1. New FHA program with certain requirements and documentation; announced August 2013 would allow a new loan one year after a short sale. Read more about the new FHA guidelines for buying again after a short sale.
2. Two years from the last missed payment-VA loans and most Conventional Loans with 20% down
3. Three years from the last missed payment- FHA loans and Conventional Loans without 20% down.
With a foreclosure these wait times are greatly extended, your credit score is impacted far greater due to the amount of time delinquent payments are posted, plus the public record posting of a foreclosure and in addition it will stay on your credit report for 7 years.
If you must choose between a short sale and allowing your home to go into foreclosure, from a credit perspective, a short sale is the wiser choice. From a liability perspective a short sale is also the wiser choice.
Through our affiliated in-house real estate brokerage, StoneCrest Realty, we work with a lot of our former short sale and bankruptcy clients to help repair their credit, find the home they are looking for and buy again when they are ready.
What Can I Do After a Short Sale To Repair My Credit?
Once the short sale is complete, there are many credit strategies to increase your credit score. Every person is different and credit strategy can be tailored to make sure that your credit score gets back to where it once was. We have had clients with 780 credit scores get back up above 700 again a year after the short sale. You have to manage your credit correctly. Below are some things that you can do to speed up the process of credit recovery.
- Order a copy of your credit report. It is reported that more than 80% of credit reports have mistakes, so order copies of your credit report from all three major credit bureaus – Experian, TransUnion, and Equifax. With a short sale on your report, you don’t need anything erroneous dragging your score down further. Common culprits that hurt credit scores are medical collections you never knew existed and debts owed by people with similar names yet tagged to your credit report.
- Be savvy about your existing accounts. Your length of credit history, on-time payments, a mix of loan types and debt-to credit ratio all play a part in your overall credit history. If you still have credit accounts that are open, don’t close them, make payments on time, keep debt as low as possible, and try to keep accounts of different types open. Having credit cards that are maxed can really hurt your credit and keep your number lower.
- Open a secured line of credit . If your credit is truly trashed and all your credit cards are maxed out or frozen, you can probably still get a secured credit card, which requires a deposit as collateral. With an opening deposit from $200 to $2,000, you can get a credit card that will report to credit bureaus and help you rehabilitate your credit score. Make small purchases that you can afford and over time you will see your score will rise. Golden One Credit Union offers one that a lot of our clients end up getting in order to help build their credit again.
It is our opinion that from a financial perspective if you are upside down in a home and losing money on it, credit concerns should not hold you back from pursuing a short sale. If you run the numbers on the financial impact an upside down mortgage is costing you many of our clients decide that temporary damage to their credit is well worth it.
Experienced Short Sale Lawyers and Short Sale Realtors
We are experienced Sacramento Short Sale Real Estate Lawyers and Sacramento Short Sale Realtors. We are a unique and powerful combination and can help you with your real estate legal issues and short sales. We have helped thousands of people with pressing real estate issues find solutions and relief through the use of short sales, deed in lieu of foreclosures, strategic foreclosures, mortgage debt settlements and legal real estate review and advice.
Our short sale real estate lawyers have achieved proven results and can give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento short sale real estate needs.
