Homeowners have the option of foreclosure or a short sale when they are unable to pay their mortgage. It is important to understand the financial pros and cons of each. In addition, knowing how an individual's credit score will be impacted is a significant aspect to investigate before making a decision.
Short Sale
A short sale occurs when a home is sold for an amount less than what is owed on the mortgage loan.
Foreclosure
Foreclosure occurs when a homeowner defaults on a mortgage loan. A lender can auction the home to recover the amount still owed on the loan.
FICO
Both foreclosures and short sales affect an individual's credit score in the same manner. They are recorded on a credit report as an account that has not been paid as agreed upon and remain on the credit report for seven years.
Tip
An individual should consider which option is more financially beneficial since foreclosure and short sales affect a credit score in the same manner.
Warning
Another option to short sale and foreclosure is bankruptcy. However, this can have a more severe affect on a credit score because it can affect more than one account.
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