Short Sale VS Foreclosure
Is a Short Sale Likely to Harm My Credit Score as Much as a Foreclosure?
Although consumers often believe a short sale will cause less damage to their credit score than a foreclosure, many commentators (e.g., List Weston of the Los Angeles Times, Money Talk; Ben Apple of Realtor.com) question whether any benefit can be gained by going through the short sale process. There are instances, however, where a short sale may lessen the credit hit caused by a foreclosure (see, http://homebuying.about.com/od/foreclosures/f/072509_Short-Sale-vs-Foreclosure.htm).
For instance, although both events remain on your credit report in the tradelines section for 7 years, depending on your credit history, a short sale may impact your FICO Score of from 50 to 130 points while a foreclosure’s impact may range from 105 to 160 points.
Further, a short sale does not appear as a foreclosure on your credit report but the mortgage delinquency preceding a foreclosure will appear. And, some mortgage lenders will report a mortgage paid through a short sale as in a “redemption status.”
Finally, loan applications generally don’t ask you to report the occurrence of a short sale–you can report that you sold your home. The same application will ask you if, in the past 7 years, you’ve ever owned a property foreclosed upon or on which you gave a deed-in-lieu. If the bank sees you were subject to a foreclosure, your loan will likely be denied. If you lie, you’ve committed mortgage fraud and may be investigated by the FBI.
So, as in so many things involving personal finances, the real answer is–“it depends”–on your past credit history, your current lender’s reporting practices and how soon you intend to return to the real estate market as a buyer.
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