I’ve been asked this a lot recently, so I thought I’d post my answer here.
For those unfamiliar with the term, Short Sale refers to a home being sold where the payoff on the Seller’s mortgage is greater than the current sales price &/or market value of the home. The bank then agrees to take a short, or incomplete, payoff in exchange for moving the property off its books and avoiding the foreclosure process.
The bad news is: Short Sales and Foreclosures are both going to have a negative impact on your credit report. But, if you can negotiate a Short Sale successfully, you can minimize that negative impact significantly. Here’s what Elizabeth Weintraub has to say on About.com:
A Short Sale will reduce your credit score by 80-100 points, and it will take you about 18 months before you’re able to qualify for another mortgage at “reasonable” rates.
A Foreclosure will reduce your credit score by 250-280 points, and will require about 36 months before a mortgage at “reasonable” rates is accessible.
Your thinking a 100-point drop is better than a 280-point drop Realtor,
Chris Butterworth
Technorati Tags: short sale, foreclosure, credit report, fico score, Fletcher Heights
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February 5, 2008 at 1:39 pm
Shailesh Ghimire
Interesting. I wasn’t aware that the point drops had been documented as such. I do know that standard conventional loans treat both a short sale and foreclosure the same in terms of seasoning. So, you’re going to wait at least 3 years in both situations to get mortgages at reasonable rates. Some lenders may differ on this but those I have worked with in the past do not.
February 5, 2008 at 4:34 pm
Chris Butterworth
That’s interesting to hear about your experiences with seasoning, and we all know that nobody really knows about the credit scoring formulas.
But from the article it looks like Weintraub is quoting a division manager from a mortgage company, so I’d like to be able to believe him. The article isn’t date-stamped, so I’m not sure when it was written, but today was the first day I saw it…