Short Sale in New York City: The Truth about Short Sales and Your Credit Score
One of the key factors to the attractiveness of a Short Sale is the assumption that actually selling your home, even if it’s for less than what you borrowed, won’t cause as much damage on your Credit Score as a Foreclosure. Because this is such a central issue the questions begs to be asked whether or not this is true?
Not to disappoint you but, according to many experts, claims that Short Sales cause only a minor drop in your Credit Rating are simply false. In fact, in certain cases, particularly when your mortgage payments are more than 90 days late, a Short Sale can cause your FICO score to drop by as much as 150 points. This is very similar to the hit it would suffer upon a Foreclosure.
On the other hand, if you’re only 30 days late on your payments, the dip in your score will likely be between 40-100 points. Problem is, due to the often lengthy process of a Short Sale application and approval, default periods in the range of 90 days are more common.
But there is some more flexibility with a Short Sale that you simply don’t get if you choose to foreclose. For example, Fannie Mae regulations are more lenient in a case of Short Sale. The rules state that you can apply for a mortgage 24 months after a Short Sale as opposed to a seven years wait following a Foreclosure. Assuming you find a lender who is willing to finance your purchase at a reasonable interest rate, this means you can start to reinvest in your home within a relatively short period of time.
Several additional factors may also run in your favor.
For example, your credit score will not drop as severely if you enjoyed good credit before your Short Sale. Finally, there is the rare case when a lender may waive the deficiency of the balance to be paid on your loan. In this scenario, your credit report will read default satisfied making it even easier to find willing lenders in the near future.