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Short Sale Affects Credit Score - how many points do you lose?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 29th Dec, 2005 11:49am
A Short sale is where the lender agrees to accept an offer for a house that is less than the amount owed on the mortgage. Short sales happen when the owner is behind or about to become behind on their mortgage and want to avoid foreclosure. Moreover, if the home is located in an area where home prices are on a decline, then it may be sold off for less at a price that isn't enough to cover the loan balance.

A short sale is less damaging to your credit score than a foreclosure. Your FICO score will drop by 75-100 points if you do a short sale, compared to 250 if you get a deed-in-lieu.

By attempting a short sale, the borrower can avoid foreclosure and a decrease on their credit score. Moreover, a short sale may be faster and less expensive compared to foreclosure.

How to negotiate for short sale..

In most cases, borrowers are approved for the sale only after they have been in default and the lender has served them with a Notice of Default. At times, the borrower has the option to negotiate a short sale in case he's unable to pay off the loan and intends to move out. In this case, the borrower should provide the lender with a hardship letter stating why he cannot continue to pay his mortgage and why a short sale is the best option for both parties. It's better to take help of a real estate agent or attorney to negotiate a pre-foreclosure sale with the lender's Loss Mitigation Department.

Posted on: 29th Dec, 2005 11:49 am
My credit score is 550 and I am selling a house. I owe 50k and I am looking to do a short sale for 45k should. How does short sale affect credit score.
I shall advise to rent it without going for a short sale. Short sale will have a negative effect on your score as it may be viewed as a foreclosure type.
Posted on: 29th Dec, 2005 12:01 pm
Hi Deoncaldwell,

Welcome to MortgageFit Forums.

In case of a short sale the lender will put on your credit report that you have paid less. So obviously, you will have your credit ruined further as happens in case of a foreclosure.

As Angel said, you may look for rent or may wait for some more time to get a good price for your house.

The discussion on the subject "Can the lender reject a short sale offer?" may help you to clear your concept on short sale.

God bless you.

For MortgageFit,
Posted on: 29th Dec, 2005 12:08 pm
* Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect credit the same. Sellers will take a hit of 250 to 280 points. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 400.

* Deed in lieu vs short sale credit score
The affect of a short sale on a seller's credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 80 to 100 points. This means a short sale with a previous FICO of 680 will see it fall to 580 to 600. On the other hand, a deed in lieu will lower your credit score by 250 points.
Posted on: 07th Jan, 2008 01:36 pm
It won't affect your credit if foreclosure has not been filed. If foreclosure has been filed then it will remain on your credit report. A short sale in itself does not show up on your credit report since it really just means that the lender is willing to accept less than what you owe on the mortgage.
Posted on: 14th Jan, 2008 12:11 am
I am upside-down on my mortgage/s and I am concidering a short sale. If the house sells for less than owed, will I be free and clear with the 2nd mortgage company if they are still owed?
Posted on: 01st Mar, 2008 01:20 am
Posted on: 01st Mar, 2008 12:05 pm
what if you are doing a short sell... and you want to pay back the bank in payments? does this affect your credit score?
Posted on: 30th Jul, 2008 02:13 pm

Even if you do a short sale and pay back the remaining debt with your own funds, your credit score will drop down. This is because you couldn't pay the mortgage using the usual payment plan as provided by your lender. Instead, you've had to sell property in order to pay down the loan. By the way, did you have any late pays?

Posted on: 31st Jul, 2008 03:00 am
I am selling my house to a relative and I owe more than what I am selling for, however I have never been late with any of my mortgage payments Ijust simply want to sell to get rid of property and both mortgages that I have on the house. I am willing to take the remainder of the second mortgage and convert it to a personal loan and pay off to bank. Would this be considered a short sale or no? Will it have any impact on credit score?
Posted on: 06th Aug, 2008 04:36 pm
Hi mariposa,

Short sale is a transaction wherein you sell off property at a price less than what you owe on any mortgage or combined loans on your property. So, what you're talking about is indeed a short sale. And, if the bank agrees, the remainder of the second mortgage can be converted into a personal loan and then paid off.


Posted on: 07th Aug, 2008 05:02 am
Welcome mariposa.

As you are selling the property in less than what you owe to the mortgage company, it will be considered as a short sale. By the way, have you informed the mortgage company, that you are willing to sell the property to pay them off?

It's good that you are paying the deficiency amount but it will not be considered as a personal loan. Consult with the second mortgage company and ask them for a repayment plan so that you can pay them off.

Let me know if you have any further queries.
Posted on: 07th Aug, 2008 05:04 am
Hi, I owe more than the value of the property, I did not get any euity from it though before. I am currently a month behind on my mortgage since me and my fiance / co signor just broke up. I want to know if I will go foreclosure or short sale on my current situation. Which will be better for my credit score? I really cannot afford to pay the 2nd loan if ever. Is there any chance that I can be free of this debt, Is there a law here in california that do that. Thanks!
Posted on: 19th Sep, 2008 10:20 pm
Since you are only a months default, I would suggest you to go for short-sale. But it is very difficult to make your lender agree to short sale because in short sale, you need not pay the difference of the outstanding debt amount and the sale amount. But if you go for foreclosure, not only you lose your home, but also the lender can bring judgment against you to recover the entire outstanding amount of the debt and all the cost incurred towards foreclosure. It will also have less negative impact on your credit score.
Posted on: 23rd Sep, 2008 05:10 am
If I go through the short sale way, will they bank go after my assests or any type of savings in my account
Posted on: 06th Nov, 2008 09:01 am
Hi Short Sale!

The bank can go after your personal assets or can garnish your wages only if you are unable to pay off the deficient amount. If you pay off the deficient amount, then they won't come after your personal assets.

Posted on: 07th Nov, 2008 12:20 am
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