User question: How does a short sale vs. foreclosure affect your credit rating? Also, after a short sale is completed, how long will it take before a lender will consider you for another mortgage?
Answer from blueroof.com: The affect a short sale will have on your credit score is typically less severe than a foreclosure. However there are a number of factors that contribute to the full effect. The main factor being how delinquent you are in your current mortgage.
While it is not always the case, some banks will approve short sales without the owner missing a single payment. This will minimize the effect the short sale will have on your credit. The more delinquent you are the more a short sale will effect your credit.
It will also be a determining factor in how soon you will be able to get qualified to purchase a new home. If you have no 30/60/90 day late payments, you typically can get an FHA loan within a very short period after short sale, if not immediately.
We have typically seen around a 2-year average after short sale to be able to buy again for those that had to go delinquent.
One other factor when determining how soon you can buy again is where your credit was before you short sale. If you start at 800 and you score gets hit by 100 points (just using round numbers as an example) then you are still around a 700 credit score which is still a great score. However, if you are are at 600 and it gets hit by 100 points, then you are likely not going to be able to buy very soon.
Other factors can include delinquencies on other debts like credit cards, cars, etc., monthly income, down payment, and employment history. Remaining current on your other debts and even paying them down or off after a short sale can help expedite your ability to get a new loan.
Unfortunately there is not a simple answer to this question because of all the different factors that have to be considered.
A short sale will be better than a foreclosure and foreclosure should always be your last option. Banks may take into account your efforts to resolve the situation and look positively on that as opposed to just walking away.
While not every short sale will go through, and the effects vary so much, it is much better to try to resolve things up front and avoid foreclosure.
*Nothing here is considered to be legal or tax advice. Any and all questions regarding tax or legal issues need to be directed to an appropriate and licensed professional.
Designated Broker for Blue Roof Realty
Please note that ABC15.com, and its paying advertiser blueroof.com which answered this question, are not qualified to offer tax advice and the best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.
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