How Will a Short Sale Affect My Credit Score
The current housing market in 2016 is in much better shape when considering where we were just a few years ago. Though many believed prices are becoming inflated due to the tremendous appreciation in home prices in some areas across the globe. These rising prices are allowing homeowners with little equity still sell for more than they have a loan out for. With these rising home prices, short sales are decreasing across the globe and allowing home owners to take some cash out of their purchase.
"A short sale simply refers to the situation when a borrower asks the lender to accept a loan repayment for less than the full amount. The amount offered depends on the sales price negotiated between the lender, the seller and a buyer." - realtor.com. In a short sale situation you will have to provide your lender with detailed information on the reason the payment is now unaffordable. This could be due to a job loss, a divorce or job relocation.
When you sell your home through a short sale, there is a difference between the amount you sold your home and what you owed the lender. In the past you were not required to pay taxes in that difference due to the The Mortgage Forgiveness Debt Relief Act. This bill's extension is still being decided on for 2016.
How bad will a short sale hurt my credit
There is no exact formula given by FICO that explains exactly how a short sale will affect your credit score. But in the past, we have found out that a short sale is likely to have the same affect on your credit score that a foreclosure does. So if you have a excellent credit score when you go through a short sale, you can expect to have a sub prime score when the short sale is complete.
Since you are taking a severe hit to your credit score, I am sure you are wondering how long it will take to get your credit score back up. This is another question, that does not have an exact answer. The best advice I can give you, is to take care of your other credit accounts responsibly so you can improve your score over time. It is possible that you will not regain your peak credit until your short sale is elminiated from your credit report in seven years.
When you are going through the short sale process it is best to try to negotiate the terms they use to qualify your short sale. Most lenders will use the term "settled" when qualifying your short sale and just by using that term, there will be a larger impact on your credit score. Your goal in these negotiations is to get the lender to use the term "paid". If the lender agrees to use the term "paid" when closing out your short sale, you will see a lighter hit to your credit score.
Despite the credit hit that you make take from a short sale, it still may be the best option for you and your family. It will allow you to move on with your life and begin to rebuild. If you do decide to move forward with a short sale, I suggest that you get expert legal help to help guide you through this situation.