Effects of a Short Sale on Credit Score

Short sale, or selling real estate property at lesser prices than the amount owed on the property, is done by borrowers who are unable to pay the mortgage amount. It is usually a better option than foreclosure, since it affects the borrower’s credit score less drastically. Lenders also consider foreclosure as the last option. The go-ahead to short sale has to be provided by the lender. This is done only after confirming the inability of the borrower to repay the money. Although evident in the form of payment arrears, the confirmation is carried out by the loss mitigation team that seeks documentation of the borrower’s income and assets.

These tips can help borrowers save their credit score while opting for a short sale:

  • Work closely with the lender on the short sale, without missing the mortgage payment.
  • Request your lender to state the sale as “paid in full”
  • Keep your lender posted on your financial situation, so that they approve of your short sale. However, if the lender declines the offer, you might have to choose between foreclosure or managing the payment and keeping your house.

How a Short Sale Affects Your Credit Score

The effect of short sale on the credit score is lesser than that of a foreclosure. That is, in a short sale, the credit report mirrors only your delinquent mortgage amount (it is advisable to opt for a short sale without missing your mortgage payment). Mortgage amount paid through a short sale is shown by the lender as in a redemption position. This changed status and delinquency although might decrease your credit score, is more favorable than the adverse impact of a foreclosure. Borrowers can also request their lenders to not report unfavorably to the credit agencies. Since every situation is unique, it is best to seek professional realtor advice before taking any decisions.

Short sale also offers advantage in terms of buying another home. Homeowners can purchase another home after two years of a short sale, according to Fannie Mae guidelines. This is in contrast to the restriction of two to five years, which is applicable in cases of foreclosure. However, buying a property after a short sale could be taxing because the seller does not receive any money (since the entire proceeds go to the lender). It is recommended that one seeks realtor guidance before buying a property after a short sale. For expert guidance on short sale or foreclosure of property, consultĀ www.floridashortsaleshelp.com.

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