Future Home Ownership

Having a short sale to avoid mortgage foreclosure will affect your credit. It may make it more difficult for you to get a home if you try to get a mortgage before the black mark caused by the short sale disappears from your credit report. There are cases, however, where it is not an option of whether or not you short sell or keep your home but whether or not you short sell or get foreclosed upon.

Before delving into the damage that a short sale may do to your credit, let’s take a look at a traditional foreclosure. When this happens, your home is sold out from under you after you’ve failed to keep up with payments. Most people believe the bank has to wait three months before they start foreclosing, but this is not always the case. There are additional complications that arise if you have a second mortgage or home equity credit loans against your home. In California, the lenders who hold this debt may come after you for the full amount and the sale of the property may not relieve the debt in full.

If you go ahead and endure the mortgage foreclosure, you’ be looking at a 120 to 250 point reduction on your credit score, according to most sources. This is significant damage, to be certain. If your credit score was a stellar 700 before the foreclosure, you may end up with a score as low as 550, which will make it very difficult to get funding for a home in the future. Even though this is the case, both Freddie Mac and the FHA have extensive information about these sales and admit that they help homeowners to avoid the pitfalls of foreclosure. There is good reason for this.

When you short sell, most estimates put the damage to your credit anywhere between 80 and 160 points. This is obviously far less risky to any future attempts to take out loans than going through the mortgage foreclosure process. Remember that being delinquent on your mortgage does damage of its own, as well. You can see your score plunge over 100 points even when you’re only 30 days late on your payments. This will obviously make it very difficult to get a loan.

In order to qualify for a short sale, you have to prove financial hardship to your lender. The best time to do this is when you know it’s coming, not after the hardship has already arrived. A realtor with experience in this area can offer short sale help. Make sure to ask about the effects on your taxes as well as about the damage to your credit.

At one time, it may have seemed insufferable to take such a blow to your credit. With mortgages failing all over the nation, however, you’re not alone if you’re in this situation. Look for short sale help to start rebuilding your future.