What a great question! If you have been thinking this, you are not alone.
A good thing about short sale is that it represents the opportunity to lift the heavy burden of carrying an overpriced home off of your shoulders and a chance to start fresh. But the one thing short sale sellers want to know is: “Coming out of this short sale, what will my credit look like?”
So here is the scoop. I want to tell you that no two short sales are the same. What I mean by this is that there are variables that change the effect each and every short sale has on your credit.
- 1. Are you going to be making your payments?
- Late payments make your score go down. You can actually make your payment and still request a short sale. But lets face it, it puts more pressure on the bank if you are delinquent.
- 2. How long is the bank going to take to make a decision?
- Your guess is as good as mine. The longer they take, the more mortgage “lates” that show up on your credit. Generally the bank will take about six months. But every bank moves at different speeds and according to different> policies. To make matters even more unpredictable, short sale negotiators usually have a 30 t0 60 day window just to pick up the file and start to process it. So even within the same bank, the time frames on the exact some type of loan can vary depending on the negotiators work load. What type of loan is it? If it is owned by the bank they can make a quicker decision, but if it owned by entities all over the globe and securitized things can get more complicated and take longer.
- 3. What is formula will be used to score my credit?
- There are 3 different bureaus and nobody really knows what their secret formulas are. It is common to have different scores at each of them.
- A short sale may lower your credit score by 120-130 points.
- A foreclosure may lower your credit score by 140-150 points.
- Bankruptcy may cause the largest hit affecting your credit score by 365 points.
After considering these three things, Howard Clark has gone out on a limb and given this general rule. This weekend he posted some guidelines on his television show and website.
According to Howard, you can expect a short sale to yield the following effects to your credit score.
Clearly it is in your best interest to do a short sale as opposed to other solutions. And there are other benefits as well.
The next most common concern short sale sellers have is: “How long can I stay in my home?” Since it takes on average 7 to 8 months to close a short sale escrow, that is how long you have. Nearly 3 to 4 months longer than foreclosure. And sometimes it can be much longer. So if you want to stay, short sale is a great option to buy some time.
Again, I want to caution you that these are general guidelines. There are a lots of variables that can effect credit scores and individual results can vary.