A short sale is an option that involves selling your home for a less amount than the one owed to the mortgage company. The net proceeds from the property sales usually fall short of the debts, and in this case, the lender agrees to this arrangement since the homeowner is unable to pay off their debts and is also not qualified for a loan modification. A proof of hardship must be provided by the seller such as fluctuations in his or her finances which render the payment to be unaffordable to him or her. If you succeed in letting your lenders agree to a short sale, then you can also request that all responsibilities in the gap between the owed balance and amount paid are absolved.
The Impact of Short Sales on Your Credit Score
Since the full debt was not paid as per the agreement, then a short sale will have an effect on your credit score. For a person who is a severe delinquent on the mortgage payments, the individual’s creditworthiness is usually in bad shape, and the objective from now on is to try and rebuild their creditworthiness via real account management. As a homeowner, you should prefer a short sale to a foreclosure since it won’t damage your credit score as much. However, you should note that both the foreclosure and a short sale option will lower your credit score, impacting your credit report for up to seven years.
The effect of the short sale will depend on several factors such as the lender’s report about the short sale. This report is customarily submitted to the credit bureau. Most of the time, the report indicates that the full debt was settled through a short sale, which means at a lesser value. The trick here is negotiating with your lender to use the term “paid” on your credit, but this is a rare occurrence. The credit score decreases by 85 to 200 points, and this depends on how you have been paying your mortgages concerning time and your previous credit score. If for instance, you had an excellent credit score of 800, then you might drop to an average credit score of 660 due to the short sale. A short sale is an indication of a potential loan default. However, despite a low credit score, a short sale will remain the best option when compared to a foreclosure. You can quickly rebuild your credit score in the future through reducing your debt and paying your bills in time in the future.
You should be able to buy another home in just a few years if you’d like to.
At JB Property Solutions LLC, we have professionals who can help you identify the pros and cons of each option and guide you through the process step by step. You don’t pay us for this guidance- we’re here to provide options to you. You can choose any option or none. No pressure. Please contact us to start the conversation- information is free!
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