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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.
Welcome Big Duck,

A short sale will definitely affect your credit score and reduce it by 75-100 points. Also, as any other negative item, it will remain on your credit report for the next 7 years.
Posted on: 12th Aug, 2010 10:39 pm
My home has been on the market for 2 yrs without any success in selling it because the homes in the area have been selling for 70-80,000. I owe 103,000. My question is ..will my new husbands credit be affected if I either do a short sale or allow a foreclosure ? I am current on my payments.
Posted on: 18th Aug, 2010 02:51 pm
Hi padirn!

Welcome to forums!

If your new husband's name is not on the mortgage, then his credit won't get affected if you short sale the property or allow the lender to foreclose it.

Feel free to ask if you've further queries.

Posted on: 19th Aug, 2010 01:37 am
I have a condo that I bought for 225, it can probably sell now for 110. I owe 165 on it. I have enough money to sell the condo at 110 and payoff the difference but obviously don't want to pour more money into this. Would a short sale still be an option if I have that money in a bank account?
Posted on: 09th Sep, 2010 07:26 pm
Hi Guest,

If you have the money to pay off the mortgage debt, then the lender will not agree to a short sale.
Posted on: 09th Sep, 2010 11:50 pm
i am currently trying to refinance my home, but may owe more than the value of the home. recently an option to negotiate a 10% write off of the principal balance in order to be able refinance was announced, but may negatively impact your credit score. any idea how much this would impact a credit score? my current credit score is 701
Posted on: 14th Sep, 2010 01:41 pm
Hi Kdiggler,

A principal reduction will definitely have a negative impact on your credit scores. However, the reduction in scores may vary from person to person depending upon the other negative items mentioned in his or her credit report.

Posted on: 15th Sep, 2010 12:41 am
Hello... I am on the fence with a short sale or foreclosure.
At this time I am insolvent... 45K in cc debt and home in Las Vegas upside down about 80 or 90K. I have no job.

Question.... If I list for short sale and the home sells while I have no job in 2010, I believe when I file my taxes in Jan or Feb, I can prove insolvency. IF however, I get an income before the home sells, even though it won't even come close to covering my debt with the credit cards, will they base insolvency/ or not eligible on the Date it sells or my financial status at time of tax filing?

Bottom line... I don't want to have to pay tax on the loss of my home and if there is a chance, I will let it foreclose. I want to start my life over- clean slate, not get hit with IRS letters and bills... garnishing wages etc as I will never catch up. I run a grassroots charity... and am hoping I will see a paycheck at last in the near future...Thank you so much. ;-)
Posted on: 12th Oct, 2010 07:34 pm
welcome survivor,

as you want to avoid paying the taxes, you should contact your lender and apply for a deed in lieu of foreclosure. if the lender accepts your request, then you'll be able to get rid of the property and you won't have to pay any taxes on the forgiven debt due to the mortgage debt relief act.
Posted on: 12th Oct, 2010 10:41 pm
Currently my credit score is approx. 740, my wife is about 680. Her name is not on our mortgage, just my own. If we go a short sale and my credit drops to a 640, would this effect us building a house once we are back on our feet? How much time do we have to wait after a short sale to buy a house?
Posted on: 21st Oct, 2010 07:34 am
Welcome Mr. Norman,

After a short sale, you'll have to wait for 2-3 years in order to get a mortgage to buy a property. You can utilize this 2-3 years in building your credit and stabilizing your financial situation.
Posted on: 22nd Oct, 2010 01:49 am
I used fresh start properties inc to do a short sale on my property during a terrible divorce.
There was about a 45000.00 deficiancy. 1 year later chase bank is showing .01 on balance, but the sale
Is complete. How do I fix this and get this off my credit report? Email gjmum2k
Posted on: 26th Oct, 2010 04:54 am
Hi gjmum,

You'll have to pay off the balance amount to the lender. However, the short sale will remain mentioned on your credit report for the next 7 years.

Posted on: 26th Oct, 2010 11:34 pm
how long does it take to recover the credit score points losed to a short sell
Posted on: 05th Nov, 2010 09:57 am
how long does it take to recover the credit score points losed to a short sell
Posted on: 05th Nov, 2010 09:58 am
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