The short sale attorneys at De Novo Law Firm have advised numerous clients on foreclosure alternatives including short sales. A common question I am asked is what effect a short sale will have on credit. A short sale is an alternative to foreclosure but will still negatively affect your credit. This is because the FICO treats short sales and foreclosures the same way. According to the credit bureaus, individuals will be in default. A short sale is still a better option than a foreclosure because it will appear as a sale on an individual’s credit report and only the previous delinquency on the mortgage will appear. Mortgage lenders will consider a mortgage paid by a short sale on the property to be a redemptive status. A negative credit will remain on an individual’s credit report for seven years after a short sale but will be eligible for another loan after two years because the home was sold rather than repossessed in a foreclosure. The sale of a home allows mortgage lenders to have more trust in clients than those who lost their homes to foreclosures. Good credit behavior can also help to rebuild credit even after a short sale.
The average loss of points on an individual’s credit score from a short sale is 85-160 and a foreclosure shows identical numbers. While an individual is eligible to obtain a loan after two years from a short sale, an individual recovering from a foreclosure may have to wait longer. The reason for the damage of credit for both short sales and foreclosures is because the amount agreed to in the sale is for less than is owed on the loan. In the case of a short sale, the house must be sold for a much lower price than the value, which is still a loss for the lenders. Good credit behavior can build a healthier credit score to be eligible to reapply for a new home loan within two years after a short sale.
If you are considering a short sale or having trouble making payments on your mortgage, call the foreclosure defense attorneys at De Novo Law Firm at (951) 801-5570 to discuss your options.