When you have trouble with your mortgage payment, one of the options that you have to consider is a short sale. Instead of going through a foreclosure, a short sale allows you to sell your property and move out. While this may be a more attractive option than foreclosure, it can also have negative effects on your credit report.
What Is Short Sale?
A short sale is a process in which you try to sell your house for less than what you owe your mortgage lender. You take care of the marketing with the help of a real estate agent. When a buyer makes an offer on the property, you have to accept it and then pass the offer on to the mortgage lender for approval. If the lender accepts the offer, the buyer purchases the property and then you move out. The mortgage lender can forgive the rest of the mortgage balance or try to come after you for it.
Long Lasting Impact
Going through a short sale can have a long-term impact on your credit history and your credit score. According to the "Wall Street Journal," a short sale can stay on your credit report for as long as seven years. This means that any time you apply for any financing over the following seven years, the potential lender will see that you have a short sale on your record. The short sale will likely show up as "settled" on your credit report, which lenders look unfavorably upon.
Credit Score Damage
When you go through a short sale, it will have an immediate impact on your credit score. According to CNN Money, your credit score can be lowered by as much as 160 points by going through a short sale. Your credit score is one of the most important numbers that you have in your financial life. While it is not a permanent deduction, it can take some time before you can build it back up to a level that will help you get financing.
Buying Another House
Even though a short sale can damage your credit, it is typically not as bad as a foreclosure when it comes to buying another house. Fannie Mae actually allows potential buyers who have been through a short sale to qualify for a mortgage in only two years after the completion of the transaction. By comparison, you have to wait at least five years before you can get a mortgage with a foreclosure on your record. This gives you an incentive to use a short sale instead of a foreclosure.
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