Thinking About a Short Sale, But Worried About Your Credit?
Filed under: Finances
There are times when a short sale might make sense, but many people are wondering about how this will affect their credit. The truth is that you can expect it to impact your credit score, but it’s usually a less severe hit compared to going through a foreclosure.
How a Short Sale Affects Your Credit Score
A short sale is reported as a settled mortgage debt on your credit report. It stays there for up to seven years, because in most situations, you’re still making some late payments during the process of working with your lender. Those late payments will stay on your credit report.
However, when your credit score is impacted by a short sale, it tends to fade a little sooner than the time it takes after a foreclosure. Generally, if you want to finance a home, then it means that you will likely be out of the market for a few years. Even though your credit score is affected, it’s sometimes possible to qualify for a new FHA or even VA mortgage in about two to four years. Conventional loans usually take a year or two longer than that.
How a Foreclosure Affects Your Credit Score
A foreclosure, on the other hand, is listed as a major derogatory event on your credit score, and it usually shows on your credit report for up to seven years. Lenders view a foreclosure as more severe, which means that you usually have longer waiting periods, often three years or more for FHA and VA loans, and up to seven years for conventional loans.
Tips If You’re Going Through a Short Sale
If you’re going through the short sale process, try to protect your credit as much as possible in every other way. Keep up with your car payments and credit card payments. Staying current on the other payments can help.
Maintain open communication with your creditors to let them know what’s going on. If you need to pause other payments temporarily, there are options available. For example, sometimes you can get a forbearance on a car payment for a few months to help you get back on your feet.
For more tips on how to maintain credit health, please DM or text me anytime. I’d love to talk to you about it. Call, text, or email me: (951) 473-0390 or [email protected]