How Foreclosure And Short Sale Affect Your Credit

"Credit is often one’s first concern when they face foreclosure or consider a short sale. That’s perfectly understandable considering the importance we put on credit these days, from getting a credit card to buying a home or car. And when hard times strike, it’s only natural for a homeowner to want to save his credit. But how do you know how you’re your credit will suffer? Below are some of the most common questions on foreclosure and short sale credit impact, and what you can do about them.


How Will It Affect My Credit Score?

In either short sale or foreclosure, the reduction in credit score is a combination of your default and the sale itself. Generally, the losses are much lower in a short sale—some 100 to 300 points (sometimes less) compared to as much as 400 in a foreclosure. The further behind you are at the time of the foreclosure or short sale, the more your credit score will drop as a result.
How Long Does It Stay On Record?

In most states, a foreclosure stays on your credit report for up to ten years. Short sales can stay as little as two years or as much as seven, depending on your lender’s policies and the terms of the sale. One advantage to short sales is that you can negotiate with your lender as to how it will be reported, and if you get a good deal, you may even get them to remove the record sooner.

How Soon Can I Buy A New Home?
The law varies by state, but generally, you have to wait around 5 years after a foreclosure before you can buy a new home. Short sales have a wait time of two to three years, depending on who owns your mortgage. Fannie Mae allows you to buy a home after two years with a certain required down payment; this requirement is lowered the longer you wait to buy. If you did not have a 60-day default when you sold off your home, you can even buy a home immediately afterwords.


How Will It Affect Future Credit?

A foreclosure usually comes with a disclosure agreement which requires you to mention the event when you apply for another mortgage. Mortgage applications usually have a section where you have to indicate whether or not you’ve gone through a foreclosure or similar transactions, and this will affect the lender’s assessment. This happens less frequently in a short sale."