Short Sales vs. Foreclosures and its effects on Credit…. Breaking the myth
There has been so much misinformation out there on the process of Foreclosures and Short sales; that I asked Katie Cook Hughes, Sr. Loan Officer at Prospect Mortgage in Tampa, Fl to clarify the situation for us!
I think that many sellers have been misinformed in regards to the effect a short sale will have on their credit. Many sellers think that they can short sale their current home and then qualify to purchase a new home immediately after their current home is sold. This is incorrect.
A short sale will show up on a client’s credit report as a “pre-foreclosure in redemption status”. The short sale will cause a 200 – 300 point drop to your credit score. For example… if your credit score was a 680, it could potentially drop to a 380.
The effect of a short sale is almost identical to that of a foreclosure regarding your credit.
The benefit of doing a short sale instead of letting your home go into foreclosure is the amount of time that will need to pass before you can purchase a new home. Based on Fannie Mae’s guidelines, a buyer can purchase a home 24 months after doing a short sale, whereas the same buyer would have to wait 48 months to buy after a foreclosure.
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