Will Short Sale Save Your Credit Score?

If you’re facing foreclosure on your Phoenix home, you may have considered selling your house in a short-sale. A real estate agent you know tells you it’s better than a foreclosure. Your co-worker did it, too, and “heard” it would be better than a foreclosure (you don’t know if he’s bothered to check his credit since doing so, however). From what you keep hearing, you’d be better off selling your home in a short-sale than taking the massive hit to your FICO credit score as a result of a foreclosure. So, what should you do?  Will a short sale save you the consequences of foreclosure?

A short sale is considered an alternative to foreclosure for good reason.  On the positive side, it can give you and your family more control over the situation. You still list your home through a Realtor for a minimum price that the lender will accept. During the sale process, you can stay in your home and protect it from the damage that can occur when a foreclosed home is left vacant.  Ideally, during this time, you will still be able to make some payment.

Lenders have not always been enthusiastic about short sales as they would prefer to collect their whole mortgage amount.  Given the current real estate climate, lenders are seeing the positives of the process: processing a short sale usually involves less cost to the bank than processing a foreclosure.  Recently, the Making Home Affordable Program mandated that banks process short sales more efficiently; major banks have countered with short sale plans of their own.  Both banks and borrowers can receive financial incentives under the federal program.

Naysayers about short sales note that a short sale isn’t any “gentler” on your credit score than a foreclosure.   CNN devised a hypothetical scenario in which two individuals with varying credit scores (680 & 780 to start) underwent similar hardships. While working with the credit scores (to see what would happen to the credit scores in various situations), it was determined that both a foreclosure and a short-sale had the same effect on a person’s credit score: both scores declined. Ironically, the person with the higher credit score took the bigger hit of about 140 points. However, many analysts would disagree with these numbers and say the credit score impact of a short sale is only about 50 points.

For most people in mortgage trouble, the impact on the credit score is not as big a concern as finding a way to either keep their home or move on with dignity.   If you are in a bad situation, the reality is that your credit is probably already on the downslide from months of being delinquent.  Not seeking the help that a short sale can offer is like telling the lifeboat driver on the Titanic that you will only take a red boat.

If you fearing foreclosure or are in over your head with your mortgage payment, a short sale could be your answer. It offers an opportunity to terminate your mortgage commitment with dignity and provide you with some cash to start planning your new life .    A HUD-approved credit counselor can help you determine the best route for you.

If you go that route, you will need the expertise of a trusted agent to list your home and follow through on the paperwork.  For more information about foreclosure alternatives or buy or sell a home in Phoenix, Mesa, Glendale, or surrounding areas, call Curtis Johnson Real Estate today to set up an appointment and get started.  The Curtis Johnson team is here to help! Go to www.curtisjohnson.com or call 1-888-Curtis – J

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One Response to “Will Short Sale Save Your Credit Score?”

  1. Housing Prices Continue to Drop in Phoenix and Nation-wide « Curtis Johnson Realty's Blog Says:

    […] the meantime, foreclosures and short sales are increasing. Combine that with slow job growth, increasing unemployment in many areas and […]

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