Short Sale vs Foreclosure

Short Sale vs Foreclosure


Credit Score When a home is sold via a short sale the credit bureau will only reflect late payments (if there were any) and will usually affect the credit score much less than a foreclosure. If you continue to pay on all of your other payments during the short sale process your score may only be affected around 50 points.  There is no short sale reported on any credit report, rather, you may see a “settled for less than full balance” comment appear shortly thereafter. Due to late payments and the “Foreclosure” appearing on your credit report it can drop your score more than 300 points. Usually all three credit scores will be adversely affected for up to four years. A foreclosure will remain as a public record forever and can remain on a credit report for up to 10 years.
Future Employment Since a short sale is not reported on the credit bureau you will not encounter these same risks.  
Foreclosures can affect credit which can affect the following aspects of future employment.
• Security clearance – can be taken away or not issued resulting in job loss or not getting a job in that particular field with those requirements.
• Some employers pull credit and will terminate employees because of their derogatory credit
• Job Applications – most employers pull credit during the application process. A foreclosure greatly affects ones credit score and standing.
Fannie Mae Loans A borrower or investor who allows the subject property to be negotiated and sold through the short sale process will be eligible, in both cases, for a Fannie Mae backed mortgage after 2 years. If this is your primary residence and your home is foreclosed upon you are ineligible for a Fannie Maebacked mortgage for a period of 5 years. If this is an investment property, it will be 7 years before you are eligible for a Fannie Mae Loan.
New Loan There is no section or question(s) that ask about a short sale situation Future rates will be affected if you allow your home to foreclose because you will have to check Yes to Section VIII, question C on the 1003 Loan Application.
Cash for Keys vs. Relocation Assistance If you are approved for a short sale you can receive up to $3000 for relocation assistance. Ask your corresponding broker or negotiator if you qualify. During a foreclosure a homeowner or tenant may be given “cash for keys” which is a payoff to ensure that you do not strip the home of its contents before they take it. This normally amounts to around $500 dollars.


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Avoid Foreclosure & Short Sale Information:

What is a Short-Sale | What is a Deed in Lieu of Foreclosure | What is a Loan Modification?
Mortgage Forgiveness Debt Relief Act | Short Sale vs. Foreclosure Comparison Chart

Contact Information

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Carrington Real Estate Services
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