The Real Impact of Short Sales on Credit – SkippyBean Realty
It’s not what anyone anywhere would wish, but if a San Ramon,Danville,PleasantonorDublinhomeowner falls behind on his mortgage payments, a short sale is one of a narrow range of options he may choose. The short sale is a process in which the bank or banks agree to accept a settlement amount that is less than the original loan. A short sale is generally considered a more desirable option than letting the home go into foreclosure; however, it is not without its own drawbacks. Fortunately, most San Ramon,Danville,PleasantonorDublinhomeowners will never face such a prospect, but an educated consumer should at least be familiar with the term.
Of course, a short sale affects the FICO — the familiar bureau-based credit scoring system that creditors and banks use to calculate risk. FICO guidelines show that there are three main credit situations that will most affect a credit score:
- Serious delinquency, defined by late payments or inability to repay debts
- Derogatory records such as tax liens or unpaid child support
- Collection filings
Short sales generally fall into the first category: serious delinquency and unpaid debts. It is not entirely the actual short sale itself that impacts the score, but also the number of months of late or no payments that are qualifications for such a sale. Even so, the fewer the number of late payments and the shorter the tardy periods, the smaller the impact.
Generally speaking, most short sales result in about 100 to 200 points less FICO score damage than does a foreclosure — and 200 to 250 points less than in an outright bankruptcy.
But there can be an additional fallout from a short sale in the form of lingering debt or tax obligations. Some short sales leave the seller accountable for the deficiency balance, which can be the difference between the sale price and mortgage and can even include the arrearage caused by missed payments. Legal restrictions may or may not provide a degree of protection, and that’s one more reason why the decision to short sell a home should never be made without contacting a qualified attorney and tax professional. In this as in less stress-inducing situations, you can also call me any time for a San Ramon,Danville,PleasantonorDublinhome price evaluation.