You may have heard the term “Short Sale” come up in conversation lately. It’s basically when your mortgage company gives you permission to sell you home for less that you currently owe on it. With property values down across the country many people who may have had equity in their home when they bought it, now owe more than they can sell it for. Enter the Short Sale.
What we want to make clear in this article is how a Short Sale will impact your credit and ability to borrow money in the future if you decide to buy another home. From a Lender’s perspective a Short Sale is viewed in similarity to a foreclosure. If you foreclose on a property (discontinue making payments are forfeit your property as collateral) under most loan programs you will not be eligible for mortgage financing until three years after the foreclosure date. There are exceptions but considering the credit markets current direction the three years could easily turn into four or five in the very near futue.
The morale of the story. If you absolutely can’t afford your current home and selling it as a Short Sale is your only option then this would be better than a foreclosure. This won’t effect your credit score quite as bad but don’t expect to come out of this smelling like a rose. You’ll certainly see a drop in your score and you’re probably not going to qualify for home financing for a few years.
Before you think ab0ut a Short Sale consider speaking to a credit counselor in your area and make sure you’ve covered all of your financial options before doing something that will have such an impact on your credit and future home ownership. If you have more questions feel free to send us an email and we’ll do what we can to help.