One question I get asked a lot is: “Does a short sale hurt my credit?” This question involves a number of unique variables. The first thing to keep in mind is that the moment you are 30+ days behind on your mortgage payment, your bank has the right to report to all of the credit bureaus that you are 30 days behind on your payments. When a late payment is reported to the three major credit bureaus, it does have a direct affect on your credit. We have seen some banks that will not allow for a short sale to take place without the homeowner being late on their payments. However, this changes from bank to bank and should be something asked directly to the Short Sale person at the bank dealing with the Short Sale sellers file.
After going through a Short Sale or a Foreclosure, most people have multiple 30, 60, and 90+ day late payments reported on their credit report. When the actual Short Sale is completed, most banks will report to your credit report that your account was “paid in full for less than the full amount.” Your credit report may also be marked as “settled.” It is important to keep in mind that each lender has a different way of reporting that a Short Sale was done, but this is the most common language used. If your home were to go to Foreclosure you would most likely see the bank report “Foreclosure” on your credit report. It is difficult to gauge how much damage will be done to your credit score when comparing a Short Sale to Foreclosure. The “way the short sale” is reflected on your credit is very important. As is the “charge off” verbiage. Make sure your Short Sale professional watches out for the bank giving you the best possible option.
Credit experts will agree that neither a Short Sale nor a Foreclosure is favorable to your credit or credit score, however, the impact of a Foreclosure potentially is going to be viewed as “much worse”.
We strongly advise you to work with a Credit and Credit Scoring Expert for more specifics on this topic, and ways in which to improve your credit after the Short Sale is complete. Recently, many of our clients were able to Short Sale their homes without ever missing a payment. Therefore, they do not have any late payments reported to their credit.
When there are no late payments on your mortgage, your credit score is generally not affected. It is possible to maintain a high credit score by completing a Short Sale without missing payments on your mortgage and other bills. Please be aware though, that your lender will still report that a Short Sale was done. So, while you may not see your credit score drop if you continue to make payments through the completion of the Short Sale, you’ll still likely have your account marked as “paid in full for less than the full amount” and/or “settled.” We always advise you speak with a CPA or tax professional and attorney and rely on their advice.
Remember, the decision to continue making payments and not to continue to make payments is a very personal one. It is not our job to “judge” our short sale clients. It is merely ours to relay facts about the process. Be available to answer our short sale clients questions, concerns or comments. Provide emotional support to those that trust my team and I with their Short Sale.
BTW – on the map below you will see every Short Sale that is currently listed for sale in the Santa Clarita Valley and elsewhere in Southern California. YOU ARE NOT ALONE!!!