How does a short sale affect your credit?

A fear many homeowners have when it comes to selling their home for less than it’s worth is the short sale’s credit implications. Does a short sale affect your credit? It can, but ultimately, the impact will depend on several factors. As short sale experts, we’ve seen countless cases where the homeowner saw minimal impact on their credit score following the short sale. Here are several things to keep in mind.


Your Payment History

Generally speaking, if you have exceptional payment history at the time your short sale goes through, you’ll see a smaller impact on your credit score. This is one reason why a short sale is the far better option in situations where the financial strain comes from a recent hardship. For example, if you recently lost your job or had to take on unexpected medical bills, you likely were not struggling to make mortgage payments prior to the current circumstances. A higher starting score can help you maintain favorable credit, even after the short sale is reported.


According to Experian, a short sale will not impact your credit as negatively as a foreclosure. Foreclosures tend to involve a longer period of delinquency. If you stop making mortgage payments for several months, you’ll face credit implications for those missed payments in addition to the eventual foreclosure notice on your report. When comparing the short sale vs. foreclosure credit impact, it’s preferable to get in front of it and settle the loan.


How the Short Sale Is Reported

When your lender agrees to a short sale, there are different ways in which the loan’s status may be reported to credit bureaus. A status of “paid as agreed” or “paid as negotiated” will cause less harm than a status of “paid in full for less than full balance” or “settled.” This comes down to whether the lender requests a deficiency balance—in other words, the remaining loan balance once the short sale goes through.


In some states, lenders cannot hold a homeowner responsible for a deficiency balance if the homeowner willingly surrendered their property. This stipulation, along with the exact terms of the settlement, shows why it is so important to have an experienced short sale specialist to advise you.


At Short Sale Cooperative, we know the intricate details that go into fair short sale settlements, and we will work to achieve a result that minimizes the impact on your credit score when possible. If you think a short sale might be the right option for you, contact us today for more information.

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