When your mortgage balance is higher than your home value and you can't afford the difference, the lender will sometimes agree to a short sale. In this situation, you sell the home and the lender takes the full sale price and forgives the remaining balance of your mortgage. Although this sounds like a good deal, having a short sale on your record can make it difficult for you to find another apartment or home to rent.
Effects on Credit
A short sale usually appears on your credit report in the same way as a foreclosure. Even though you initiated the short sale, you still failed to follow through with repaying your mortgage as agreed and the bank still wrote off a loss. The only exception is if the lender did not report that a balance was forgiven. Depending on how high your credit score was before the short sale, you could see your score drop anywhere from 100 to 160 points. This is in addition to the credit score damage caused by any missed payments before the short sale.
Effects on Rental
Most apartment companies check applicants' credit histories as part of the tenant screening process. If you apply for the rental after your short sale, the apartment company or property manager will see this on your credit report and might not allow you to rent the apartment. This is because credit problems in the past are a strong predictor of problems in the future. However, if you find an apartment you can rent without going through a credit check, the short sale should not affect your chances of renting the new place.
Timing
If you know you will be going through a short sale soon and need somewhere to live after that, apply for the apartment rental before your short sale is finalized. That way, the credit check will not show the short sale and you will be more likely to qualify for the rental.
Tips
If your short sale was due to a circumstance beyond your control, such as declining property values followed by a relocation, or high medical bills that caused you to fall behind on payments, mention this. Explain to the apartment rental office, property manager or potential landlord why you had to settle for a short sale on your house and why you do not anticipate further financial problems. Especially if you kept up with your payments leading up to the short sale, the landlord might be willing to overlook the short sale and rent to you.
Solutions
Even with a short sale on your credit report, you can sometimes offer additional security for a landlord to get an apartment lease. One option is to have someone with good credit cosign the lease with you. That way, the apartment company can legally pursue this individual for payment if you fail to pay your rent. Another option is to offer to put down a larger security deposit than usual. If you can provide an extra month's rent, this gives a cushion so the landlord will not lose as much money if you fail to pay rent.
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