March 5, 2008
Will a short sale hurt my credit?
Of all the questions I get, this is the most common about mortgage short sales. Richard, will a short sale hurt my credit?
The answer is, probably not much.
A short sale is usually reported as "Paid - Settled" which is what we call an adverse report. We all would like "Paid - Satisfactory."
But "Paid - Settled" is not a chargeoff. It's not a foreclosure. It's not a delinquent or late payment.
In fact, you can often do a mortgage short sale and never make a single late payment. The lender can still approve the short sale and you can get out from under while you have not ever been late.
If you are very concerned with your credit rating on a short sale, this is good news.
There are times when a short sale will hurt your credit, though. Certainly, if you are late with your payments, the lender will often report this. So I see a lot of short sales where the borrower's credit is hurt because of the delinquencies before the short sale.
Also, credit bureaus pick up public records in their reports on you. If a lender files a "notice of default", or NOD, with the county courthouse, that may show up on your credit report as a public record search. This is how bankruptcies and judgments are picked up — through a public record search and nothing to do with what a lender or credit grantor says about you.
There isn't much I can do to remove an accurate honest public record report like a notice of default. But if you do a short sale, you can show your lenders in the future that you settled the obligation and it is not a foreclosure.
Please take a look at can second mortgage lenders sue you after foreclosure.
Also see this article on using an expert to do your short sale.
Also more info on how credit is reported on a short sale.
And make sure you watch my video on short sales and credit. I will never give your name or email away or share it and you can opt out by clicking a link that is on any email I may send you. You will love the video as it answers so many questions. Thanks!
Trackback uri
http://www.mortgagereliefformula.com/03/05/will-a-short-sale-hurt-my-credit/trackback/
7 Comments on Will a short sale hurt my credit? »
March 20, 2008
SoCalGal @ 9:59 am:
There's SO MUCH mis-information out there about credit scoring! A comment on one's credit report–for example, "paid settlement"–has nothing to do with the score!
Whether you give the keys back to the bank (deed-in-lieu) or you short sale the property or you live in it until it's sold on the courthouse steps, the lender will report using Score Factor Code #22–"serious delinquency, derogatory public record or collection"–and the hit to your score is EXACTLY the same.
Anyone can write to Fair Isaac & Co.'s help desk at cbhelp@fairisaac.com and verify that this is true. You must include your phone number as they will not put their response in writing.
IF–and it's a huge "if"–you can convince the lender to report as "paid as agreed; never late," which is a different Score Factor Code altogether, you MAY get out unscathed, but why would a lender do this? The whole purpose of a credit report is for creditors to tattle on you to their credit-granting buddies so the next guy doesn't get stuck like you just stuck them.
Short sale = NO ADVANTAGE TO THE HOMEOWNER with respect to credit score.
With respect to future loan qualifying, there's NO ADVANTAGE to the homeowner when they agree to a short sale. You will not get an institutional loan for two years. [current guidelines; may change without notice]
May 3, 2008
Renessa @ 7:14 pm:
Hi Richard,
My home is is foreclosure and i feel like it is impossible to catch up my paymnts are seriously delinquent and i don't think i can catch up. my loan is for about 108000.00 but i owe after foreclosure process 130000.00.? What if anything due you recommend i do. I have the income to pay the mortgage but my credit sucks and i have no equity in this home for it does need repairs.
May 12, 2008
Richard Geller @ 7:46 am:
Hi Renessa, perhaps you can't catch up. A deed in lieu of foreclosure can be a good idea in some cases. Or a short sale. Some people simply live in the house without making payments and eventually move out. If they save money they can prepay rent and get an apartment or a rented house. It is possible to buy a house with bad credit and no money down. There are lots of options.
regards
–Richard
August 4, 2008
Ellen Tajima @ 5:16 pm:
Unable to download shortsale information
Ellen Tajima @ 6:21 pm:
Unable to downloand
December 2, 2008
Michael @ 10:01 pm:
Richard,
Hello. I purchased my first house at the height of the housing market crash for $300K. Sadly my house is worth half of that now based on what the houses are selling in my area for. In addition to not being able to sell my house, I can no longer afford the mortage on my $300k house.
I have not been late on any payments and I have pretty good credit. However, it is just a matter of time before I cannot pay my mortgage. I have been considering a short sale but I am worried that it will affect my credit and stay on my record for good. Would a short sale be the way to go? Also will this cost me a signifigant amount? Please let me know your thoughts. Thanks.
Best regards,
March 20, 2010
T.Crosby @ 7:45 pm:
What happens to the unpaid principal balance after a short sale?