In regards to your credit score, the negative credit impact of a short sale is much less than that of a foreclosure and as such is preferred over a foreclosure for many reasons. A short sale will not appear as a public record foreclosure on your credit report which will stay there for 7 years, and therefore only the previous delinquency on your mortgage will appear. Most mortgage lenders once the short sale has closed will report the loan as “paid in full for less than the full balance.”
The most significant short sale credit impact comes from the presence of the delinquent payments; 30 day, 60 day, 90 day, 120 days plus. Once the short sale is approved and it closes those delinquent payments will cease to be posted and as time goes on will slip further into the past and in turn your credit score will start to go back up. There are many factors that affect credit scores, but if the only item on your credit that you are delinquent on is your mortgage once that is resolved you can see how your score would improve.
The current wait times to buy again after a short sale are as follows; this information is subject to change as lenders change their policies but the majority of these policies have been consistent for several years now:
1. New FHA program with certain requirements and documentation; announced August 2013 would allow a new loan one year after a short sale. Click to read about the new FHA guidelines for buying again after a short sale.
2. Two years from the last missed payment-VA loans and most Conventional Loans with 20% down
3. Three years from the last missed payment- FHA loans and Conventional Loans with less than 20% down.
With a foreclosure these wait times are greatly extended, your credit score is impacted far greater due to the amount of time delinquent payments are posted, plus the public record posting of a foreclosure and in addition it will stay on your credit report for 7 years.
If you must choose between a short sale and allowing your home to go into foreclosure, from a credit perspective, a short sale is the wiser choice. From a liability perspective a short sale is also the wiser choice.
Once the short sale is complete, there are many credit strategies to increase your credit score. Every person is different and credit strategy can be tailored to make sure that your credit score gets back to where it once was.
It is our opinion that from a financial perspective if you are upside down in a home and losing money on it, credit concerns should not hold you back from pursuing a short sale.
We are experienced Sacramento Real Estate Attorneys and Sacramento Realtors. We are a unique and powerful combination and can help you buy Sacramento Real Estate homes or sell Sacramento Real Estate homes with proven results, legal advice and the strategy needed to give you the results you want. Contact us today by clicking HERE or by calling 916-378-5760. We look forward to helping you with all of your Sacramento real estate needs.
