This is a popular question and concern for Short Sale Sellers everywhere....the Post below courtesey of Wendy Rulnick in Florida explains credit scores and short sales and how the two are affected.
Curious what your credit score will drop when you do a short sale? You’ll often read on the internet 80-100 points, sometimes less. Guess what? Sometimes it is more. I just received this email from one of my Santa Rosa Beach Florida short sale sellers. I sold his home a few months ago. I had asked him to check his credit score before and after the short sale. Here is his email:
“Checked on my credit score with Transunion and went from 780 (Excellent top 2 percent) to 633 (Rated poor to good). I was anticipating somewhere around 680 and disappointed that big of a drop.”
My seller only had one mortgage loan on his home. So, six missed payments and a short sale caused a 147 point drop. I don’t know the other variables he had that may have affected his credit, like high charge card debt, etc. But his drop is more than what is often quoted for a short sale.
A short sale or foreclosure are both similar derogatory events on your FICO score. However, a short sale will have a lesser impact on your future ability to borrow than a foreclosure or deed-in-lieu of foreclosure.
Fannie Mae, the nation's largest backer of mortgages, has guidelines that favor those who do short sales versus foreclosures or deed-in-lieu of foreclosure. In fact, you may be able to purchase a new home immediately if you have no missed payments and were not required to sign a promissory note or deficiency judgment was not entered. Otherwise, the waiting time is normally only 2 years after a short sale to buy a new home.
If you do a deed-in-lieu of foreclosure (turning in the keys) you will have to wait 4 years to apply for a mortgage with restrictions up to 7 years If you do a "walk-away" foreclosure, you will have to wait 5 years with even more stringent borrowing terms and a credit score of at least 680.
Additionally, your chances of a deficiency judgment may be less with a short sale, since
you are working with your lender to resolve the problem. In other words, with a short sale, your lender is not “taking” your property back and you are not leaving it in their lap.
So, don’t just focus on your credit score when contemplating your alternatives. Compared to foreclosure, a short sale may be your best choice when it comes to your future financial security.
It's Wendy!
Wendy Rulnick, Broker, CRP, CRS, GRI, ABR Rulnick Realty, Inc.
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This site, Wendy Rulnick or Rulnick Realty, Inc. is not providing legal or tax advice. The information provided is for educational and informational purposes only. It is recommended that sellers considering a short sale should consult an independent legal and tax advisor for more information.
Sally K. & David L. Hanson, ABR, CDPE, CSS, e-Pro,ILHM, REDS
Hi Sally & David:
I believe that missing 6 payments should have a very negative effect on one's credit score.
Missing ANY payments will of course...but a short sale in the short run the long run...a HOME run is far better than the usual alternative.
Sally & David - Thanks for thre re-blog! and good morning!
It IS a good morning.....happy to re-blog you anytime Wendy....! Hope you are feeling like running laps this morning and every morning...ok....taking a walk !