How does a Short Sale really Affect your Credit Score?

October 13th, 2009 | Tags: Foreclosure

short-sale

A short sale is when you sell the property back to the lender in “deed in lieu of foreclosure”. It simply means that you are selling the house and that the money will go towards making a payment on the unpaid and remaining mortgage payments. Of course a short sale will affect your credit score but not as much as a foreclosure would. Remember that if your FICO score was 680 before foreclosure, it can dip as low as 380 after foreclosure.

Negotiating with the bank

You can actually negotiate with the bank about how they report your credit score and how they are going to negotiate for their financial losses on account of the short sale. Remember that you are actually doing a favor to the bank when you sell the property. Firstly the property is off their hands and secondly, they have got a substantial amount on the mortgage loan that they gave you.

If you owe too much, then your credit score will be really lowered. If you owe much less, then your credit score will be affected, but so much. You should be able to make it turn around if you keep good paying habits for the next 18-24 months. If you have had accounts that are open for a long time, had a good history of paying the previous loans and are currently paying credit card debt, car loans etc. your credit score should be good enough to see you through.

You can even do a short sale without been late for a mortgage payment. However if you are later than 30 days in paying your mortgage amount, this will definitely lower your credit score. Mortgage loan providers always look at the previous mortgage loan account. If you aren’t late, then you could get a decent second mortgage.

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