How Long Does Short Sale Remain on Credit Score?

Hey guys, Mike from Mike Buys Houses here. I was recently speaking to a homeowner and she was asking me about the short sale process and specifically, how long does a short sale stay on her credit?  If you have been thinking how long does a short sale stay on your credit then this will help you figure that out.

Short Sale Basics

She was considering a short sale even in this hot market, as her property was underwater – in essence she owed more than it was now worth. So she wasn’t able to sell the property without bringing cash to the closing table. Therefore, she was interested in a short sale and really wanted to know what impact this type of a transaction would have on her credit score. 

So first we talked about what a short sale is as well as when a short sale would be advantageous, and then we talked about how long it’s going to stay on your credit. 

Defining Terms of a Short Sale

The first thing to consider is what exactly the term refers to. In plain speak, a short sale is when the homeowner sells a property for less than what is owed on the property. So for example, if you owed $100,000 and the property was only worth $80,000 now. If you need to sell the property and you could only sell it for $80,000, then maybe a short sale would work for you. That might be a good option for you, or at least something to explore. 

Basically, the short sales process is where you’re going to work with the bank in order to have them accept this amount of money that’s less than what you owe for the property. So if the bank is open to that and they’re willing to do a short sale then in that situation, the lender or the bank in this situation is going to get all of the proceeds from the sale. Ss the homeowner, you’re going to walk away with no money from that sale. 

In some states, the lenders even have recourse where they can come after you for the differences owed and that’s called a deficiency judgment. This goes to note that you’re going to want to check with an attorney in your state before you do a short sale to explore whether or not that’s something that’s a viable option in your state. 

Short Sale Timing

So when would a homeowner want to do something like this? This is usually done to avoid foreclosure, so if a homeowner needs to sell their property and they are behind on the payments. Combine that with the fact that the property is worth less than what’s owed against it, then a short sale may be a good option. As mentioned before, this is done in order to avoid foreclosure, which is more detrimental to the homeowners credit. So as a way to avoid that entire process, the bank and the homeowner in conjunction will work together to get a short sale done to help sell the property. 

Usually it’s going to be done with a real estate agent who’s familiar with this. So you’re definitely going to want to check with your real estate agent if this is something they’ve done before if you’re planning on listing the property as a short sale. 

Short Sale Impact on Credit Score

Finally, we talked about what kind of impact a short sale will have on her credit score and how long to expect it to last. So, similar to a foreclosure, a short sale is going to have a negative impact on the homeowners credit and this credit impact is going to last for seven years. 

So depending on whether or not the mortgage was behind on payments is depending on when the start date is going to be. If the mortgage was behind on payments, then the start date for that seven year period is going to be the day of the first missed payment. If the mortgage payments were not behind and a short sale was conducted, then the seven year period is going to start on the day of the short sale. 

If that’s something that you’re considering, I highly suggest that you give me a call (267) 984 4765 or fill out the form below. We’d love to connect with you. We can actually purchase your property and show you how we can help you by increasing your credit score over the next couple of years while purchasing a property, taking that headache off your hands and helping you out by not only avoiding this negative impact but actually improving your credit over the next couple of years. 

So if that’s something that you’d like to learn more about then give me a call 267-984-4765 We look forward to helping you!