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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.
Ok, first off: I have no credit card debts currently. The only debts I have are a student loan and a mortgage. I want to do a short sale for my house for the following reasons:
1. I owe over 50,000 on my mortgage than what the actual value is. I have absolutely no equity. By the way, I have two lenders. One is for the main lender, the other is for the second mortgage (the down payment if you will).
2. The state I live in (Michigan), it has a high unemployment rate. I am one of the unemployed. So that means my unemployment will run out soon. I have been keeping up with payments, but once unemployment runs out, no more payments.
3. I have job prospects and opportunities out of state. The house I have is keeping me from becoming economically viable.
4. I have about 10,000 saved up. I don't want to burn through that since that would be foolish. I also have some retirement which I donfrom it, because that would mean penalties and taxes. Since my state has such bad unemployment, I don know when I will be able to my retirement.
I want to know, can I actually do a short sale? Do I have to provide a hardship letter to the relater (or to the lender)?
I also heard that through the end of this year, if you do a short sale, the loss will not be considered income as long as the mortgage was not used for anything other than your house? Can you confirm this?
Should I cash out my savings so that the lender go after it?
Anything else you could tell me.
Posted on: 08th May, 2010 09:39 am
Hi cads,

I've given my suggestions in regards to your query at:

Take a look at it. Hope it helps you.
Posted on: 10th May, 2010 12:08 am
Can I close on my house (short sale) without being 31 days behind on my mortgage..?
Posted on: 12th May, 2010 07:02 pm
Welcome back bobbibell,

Generally lenders will accept your short sale once you are delinquent on your mortgage payments. If you're current on your mortgage payments, the lender may not accept your request.
Posted on: 13th May, 2010 12:14 am
I owe 150 to the bank on a house purchased at 164 the tax appraisal on the home is 191. I can bring 20 thousand to close in cash. I am leaving to go back to Law School for 3 years in July. I have 815 credit score. I cannot get an offer on my home. Is it smarter for me to short sell than to spend my 20 thousand that I need for law school? Should I preserve my credit or will it rebound in 3 years. I have no intention of buying a home in the next 10 years.
Posted on: 09th Jun, 2010 08:14 am
Hi Jeff,

I've given my suggestions in regards to your query at:

Take a look at it. I hope it will help you.
Posted on: 10th Jun, 2010 01:17 am
My wife and I moved across country for work and currently rent a house. We could not sell our home and rented it out. We now want to sell it but it may not be worth the value of the mortgage. Is there any way to sell a home for less than the mortgage and pay off the balance of the loan through monthly payments and not affect our credit? My lendor, Chase, says that you can't pay off the value of the home if you sell it for less than the loan, but only do a short sale. Is this true?
Posted on: 13th Jun, 2010 06:21 pm
Welcome Andrew,

You can apply for a short sale with your lender. You'll be liable for paying off the deficient mortgage balance to the lender. You can negotiate with the lender for monthly payments. However, your credit score would get reduced by 80-100 points.
Posted on: 14th Jun, 2010 12:13 am
Thanks for the info. So if I pay off the remainder at the closing would it still be classified a short sale and affect our credit?
Posted on: 14th Jun, 2010 03:09 pm
Hi Andrew!

Welcome back to forums!

Though you pay the deficient balance at the closing, as far as I know, it will still be considered as a short sale and have a negative affect on your credit.

Feel free to ask if you've further queries.

Posted on: 14th Jun, 2010 10:49 pm
If my it score is 822 and i lose 100 points after a shortsale, Will my credit report damage my chances of using a va loan soon there after?
Posted on: 30th Jul, 2010 07:06 pm
Hi tommy,

Immediately after a short sale, you won't be able to get a VA loan. Though you've a good credit score, yet you'll have to wait for 2-3 years in order to qualify for a VA loan.
Posted on: 30th Jul, 2010 11:40 pm
Dear sir/madam.I recently did a short sale on my home after I stop the payment for about 14 months.the bank(chase)agreed to do the short sale,but they did not mention anything on closing that I don't owe anything(The deficiency).how can I clear my credit report, saying that I did a short sale,not a there a chance they can come after me for the deficiency amount?kindly help.
Posted on: 03rd Aug, 2010 09:33 pm
Hi anonymous,

In case of a short sale, the lender can after you for the deficient balance. You would be responsible for paying off the balance dues. As far as your credit report is concerned, it is your lender who should report it as a short sale and not as foreclosure. If your lender has reported it as foreclosure, you should contact the lender and request him to rectify it.
Posted on: 03rd Aug, 2010 10:55 pm
If I do a short sale of my home, will that affect my credit score for 7 years?
Posted on: 12th Aug, 2010 06:20 pm
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