April 19, 2008
How Does a Mortgage Short Sale Affect Your Credit Score?
If your home is being foreclosed, you understand that your credit report will be adversely affected. And what gives great weight to your credit rating is your credit or FICO score.
A foreclosure can mean a terrible hit on your credit rating because it means that you have been delinquent in making your monthly payments. That has a definite impact on your credit score. One third of your credit score is based on what you owe. And this number is compared to your available credit totals. If you come close to your credit limit or you owe too much, then your score will be lowered.
Another influence to your credit score is how long you have had the account. The ideal situation is to have accounts open for a long period of time and that you have a “healthy” grouping of debts including mortgage, credit cards and an auto loan.
If you find yourself in a situation where you have to do a short sale, you may have late payments on your mortgage as part of your credit record. This affects your credit score and your credit rating.
You can avoid this problem with the help of your lender. You can do a short sale. A short sale is when you sell your property for a lower price than what you owe. But in order to do it, the lender or lenders must agree to it. It is a good alternative because it allows you to preserve decent credit. In order to do a short sale you need the agreement of the lender. When you make that agreement you can also get him to agree to report to the credit bureau one of three categories about your account — “Paid-Settled,” “Paid-Satisfactory,” or “Unrated.” And you can also do the short sale before you are delinquent with your mortgage payments. This will preserve your good credit. Why are they willing to do this? Because the lender wants to get something back on his or her investment. By selling your home they can be assured of that. If, however, the lender just went on with a foreclosure, then he or she could lose tens of thousands of dollars in expenses for going through the foreclosure, for fixing up the home for re-sale and for marketing and selling the home.
More on what a short sale is and how it can affect your credit can be found in the Mortgage Relief Formula and a video on short sales and credit. Both can be obtained over the internet.
And watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. Thank you.
6 Comments on How Does a Mortgage Short Sale Affect Your Credit Score? »
August 25, 2008
Carmen Rosario @ 10:30 am:
I'm in a upside down mortage
Well in this situation you may want to consider either a short sale, or a loan mod. A loan mod would let you stay in the house. A short sale will let you sell the house and get out of the whole situation. It depends upon what you want to do. A loan mod is largely done only if your income shows the lender you can make the new payments. The short sale may be the best alternative for many folks in this situation, because you can escape the whole thing and help the lender get as much back as possible on the loan (or loans if you have two mortgages on the property.)
warmly
–Richard
February 11, 2009
Karen Blagmon @ 5:34 pm:
What happens if I stop making the payments while simulataneously trying to get a short sell?
Karen Blagmon @ 5:38 pm:
Please let me know what you can about short sells, how they affect my FICO credit score, and how long it typically takes to close. I'm hearing from my realtor that it can take a very long while; since banks have so many of them these days. What affect would a short sell and no payments have on mh credit. What advantage is there to continuing to make my payments? Please advise. Karen
Hi Karen, a short sale will affect your FICO score a bit, perhaps 50 points, but it should appear on your credit report as "paid - settled for less than the amount owed." Which is less of a ding than a lot of things. Usually it's the late payments that hurt your FICO. If you keep making payments, you will probably do better credit-wise. You can often get a short sale approved even if you are on time, but it is easier to do if you are not making payments.
warmly
–Richard
June 23, 2009
Ernie @ 8:29 pm:
We applied for a loan modification and our bank is sending us a written proposal to make 3 monthly payments in July, August, and September for a certain amount. Based on my phone call with the mortgage rep, if we can make these payments on time, the life of the mortgage loan will be established only savings us $40.35 monthly compare to our current payment.We are very displeased with our bank's proposal. The amount owed on our home is $303,000, and the actual value of our home is worth about $250,000. We are looking for some financial relief while sparing our credit. What method should I seek? Foreclosure or short sale since our loan modification is out of the question?
August 5, 2009
Ed @ 2:18 pm:
I am in an interest-only mortgage, upside down about 20k. My mortgage company can only offer me a loan mod that will RAISE my payments $161. Still current on payments. Anything you can recommend??
September 4, 2009
Marcella @ 1:39 pm:
I am in an upside down loan by more than 75,000.00. I am current on my payments. I have a 2 mortgage loans. I am interested in a short sale and buying another house. Is there anyone that can advise me of what my options are?