DISTRESSED HOMEOWNER QUESTION
“How will a short sale impact my credit score?”
This is a very common question. Even if we aren’t asked this question by the distressed homeowner we’re working with, we bet the homeowner is at least thinking about the question.
If you’re wondering yourself, just know that you’re not alone and it’s perfectly normal to think about. After all, aren’t you completing a short sale in order to avoid a foreclosure on your record and credit history?
There is good and bad news associated with answering this question.
THE GOOD NEWS
If you are currently behind and missing payments on your home loan now, then you can bet that your lender has already reported your late and missing payments. You’re probably already getting dinged every month that you miss a payment. So, what’s the good news here?
Short sale success will actually help in this regard on three different levels. We outline them here:
- All collection activity associated with your mortgage AND negative reporting to the credit bureaus will stop. This is because you completed the short sale, and you no longer have a troubled mortgage in your name. Your credit score will stop taking a monthly hit.
- You will avoid a foreclosure with a successful short sale. The foreclosure would have resulted in a devastating affect on your credit if you had not have been proactive in calling us.
- After the short sale is complete, you will have a $0.00 mortgage balance. Removing this huge amount of debt from your credit can actually have a positive impact on your credit score.
THE BAD NEWS
A lot of “short sale experts” will claim that a short sale will result in a certain point total being subtracting from your credit score. We strongly disagree with reporting to you a specific number hitting your credit score. There are just too many variables involved to be able to say exactly what point number will be subtracted from your personal credit score. Besides, are these “short sale experts” also credit bureau experts as well?
Let’s think about it.
If you complete a short sale with only one month of missing payments, wouldn’t it be easy to conclude that you will get hit less than the guy that has missed 12 monthly mortgage payments?
Also, if your monthly mortgage payments are, for example, $1,200 per month and someone else has a $3,200 monthly mortgage payment, wouldn’t the negative hit to your credit score be less for missing payments?
There are just too many personal variables involved to give you an accurate point value that will be subtracted from your credit score after a successful short sale. Be cautious of anyone that gives you a specific number.
THE BOTTOM LINE
Some people we’ve spoke to have the idea that a short sale has the same impact on your credit as a foreclosure or a bankruptcy. This is simply not true.
Once your short sale is complete, your mortgage lender has the option of submitting the finished transaction to the credit bureaus as ‘PAID IN FULL’ or ‘SETTLED FOR LESS THAN FULL BALANCE.” Either of these results in less damage to your credit worthiness than the foreclosure or bankruptcy route.
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