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If you are facing the prospect of foreclosure, it is important to understand that you could lose up to 300 points from your current credit score. A foreclosure will typically lower your score by at least 185 to 200 points. When you factor in the damage done by late payments prior to a foreclosure, you could be facing a credit score in the low 300′s as a result. This means that getting a credit card, a new car and certainly a new home will be nearly impossible for many years.
Credit History: Short Sale vs Foreclosure
A short sale, or selling the home and settling for less than the amount you owe the bank, will still have an impact on your credit history, but it will not be as severe as a foreclosure. In this instance, the bank will report that you “settled the debt for less than you owe.” It will be visible when your credit history is pulled, but it does not have the impact of a foreclosure.
If you already have good credit and have built your credit history over a period of several years, a short sale should not have much of an impact on your overall credit score. Although it may lower your score, generally the damage can be corrected in a shorter period of time. However, if you have a recently established credit rating and have never purchased a home before, a short sale may have a greater impact on your credit score. It won’t be the significant drop that happens with a foreclosure, but it will go down.
How Lenders and Creditors Will View Your Report
The main thing to focus on here is how new lenders and creditors will view your credit report after a short sale and how it differs from a foreclosure. With a foreclosure, a home owner basically walks away from their debt. It remains on their credit history for a period of seven to ten years, letting new creditors know that you are indeed a bad risk.
A short sale just says that you settled for less than you owe. This gives a much better impression. While the original lender didn’t get all that was owed to them, they did get a large portion of the debt and it proves that you at least attempted to make good on the credit that was offered to you. While it’s not perfect, it’s better than having a reputation of walking away from debts that you owe.
Buying a Home After a Short Sale
For the first two years after a short sale, getting a new home loan or credit may be difficult, but it won’t be impossible. You can take steps to rebuild your credit and show future creditors that you can make good on what you owe in the meantime. Typically, for a period of twenty four months following a short sale it’s a little harder to get new credit or a new home unless you go to a federal lender like Fannie Mae.
A short sale may not be an ideal thing to have your credit history, but generally speaking it is much better than having a foreclosure on there.
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Tags: buy, Carlsbad, Credit Score, Escondido, FICO, Foreclosure, Home, House, Information, Poway, Real Estate, San Diego, San Marcos, sell, Short Sale
Posted In Blog, Sellers, Short Sales
This entry was posted on Thursday, January 14th, 2010 at 8:47 pm and is filed under Blog, Sellers, Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.