Will a Short Sale Affect Your Credit?

What is a Short Sale?

A Short Sale occurs when a Lender agrees to accept less than the amount owed to the Bank by the home owner because there is not enough equity to sell the home at the amount owed to the Bank and cover all the costs of sale.

Not all Lenders will allow a home owner to sell their home as a Short Sale just because a home owner wants to sell and finds their home value less than what homes are currently selling for in their neighborhood however, and it used to be that Lenders wouldn't even consider a Short Sale if your payments are current.  In some instances this has changed, but Lenders are still more agreeable to negotiation and the sale of the home at less than what you currently owe,  if your payments are in arrears. Also, if you have cash assets, the Lender might be less than agreeable to the Short Sale process, asking for payment from the cash assets that you have.

Fair Isaac, which developed FICO scores, released a report that says credit scores are affected about the same, whether a seller does a Short Sale or Foreclosure. Fair Issac says the average points lost on a FICO score are as follows:

• 30 days late: 40 to 110 points
• 90 days late: 70 to 135 points
• Foreclosure, short sale or deed-in-lieu: 85 to 160
• Bankruptcy: 130 to 240 

(Fair Isaac article found HERE)

The same article goes on to state:

Absorbing a big credit-score hit can make many transactions more costly. It's not just paying more for credit card debt and auto loans, insurance can cost more as well.

The average savings for someone with a good versus mediocre credit score is about $115 a year for auto insurance and $60 for home, according to Loretta Sorters, of the Insurance Information Institute.

A low credit score can even make it harder to rent a home because landlords often use credit scores to weed out prospective renters.

Mortgage brokers are also quoted as stating that the effect on a consumers credit report is quite similar, with no credit score advantage for the delinquent borrower doing a Short Sale versus a Foreclosure.

Therefore, if you are considering the possibility of selling your house as a Short Sale, thinking that you will be saving your credit score, it is my advice that you contact a lawyer, a tax accountant and/or a mortgage broker for more advice.  The above information is provided as a courtesy, with the advice that such professionals be consulted before the process of a Short Sale is started.

If you need further assistance to get your home sold via Short Sale, if you need questions answered regarding a regular sale of your current home, or if you are looking to purchase a home in the Santa Clarita Valley, please feel free to call me direct at:

LeeAnn Bell, 661-309-2364

Or email me at:  

LeeAnnRealtor@yahoo.com

It is my goal to make the process of selling or purchasing real estate as easy and as understandable as possible for you!

LeeAnn Bell, REALTOR(R)
DRE License #01260650

Here is what a recent home buyer had to say about working with me: 

"you are easy going, yet knowledgeable and honest to the point of offering careful and helpful advice"    

- A.L.,  Sand Canyon