Short Sales Impact On Credit

Most sellers do not realize that the short sale itself  is not what adversely affects the credit report but the late payments.

A recently released Fair Isaac report shows how  credit scores are affected e for  a short sale or foreclosure based on a  history of late payments . Here is the Fair Issac report on points lost on a FICO score :

• 30 days late: 40 to 110 points
• 90 days late: 70 to 135 points
• Foreclosure, short sale or deed-in-lieu: 85 to 160
• Bankruptcy: 130 to 240

FICO stands for the corporation that developed it: Fair Isaac Corporation, named in 1956 after its founders Bill Fair, an engineer, and Earl Isaac, a mathematician. It’s a complex credit-scoring formula that assesses the risk a borrower may default.

Based on this study it evident that the sooner the sale is done the lower the impact on the your credit report. O The numbers indicate that a short sale done at 31 days of mortgage delinquency may have a s little as a 40 point impact on a credit rating, opposed to as much as 135 points if done at 135 days. I am not aware of many foreclosures that happen at 30 day after mortgage delinquency. A short sale however can happen much quicker based on a number of factors such as price  and marketing strategies.

It’s the late payments that dramatically affect your credit report, not the short sale.

There is also a plethora of anecdotal evidence , gathered form speaking with and reading agent’s testimonials, that suggests that the credit defects may be significantly smaller for a short sale vs. a foreclosure.

There benefits of a short sale over a foreclosure are more evident when it comes time to buy the next home.

The 2010 Fannie Mae guidelines  allow  a seller who is current but has done a  short sale to  qualify to immediately buy another home.

The  revised Fannie Mae guidelines require  that the  seller kept the payments current, had no delinquencies exceeding 30 days and did not agree to repay the debt relief.

For those who have had late payments Fannie Mae  now require only “24 months seasoning,” which is a huge advantage over the 5 to 7 years wait period  for those who experienced foreclosures.