Both a short sale and a foreclosure can seriously damage your credit. Eligibility for a later mortgage depends on the loan program, payment history and circumstances. The exact effect depends on your credit history, your lender, and your loan type.
Both a short sale and a foreclosure can seriously damage your credit. Eligibility for a later mortgage depends on the loan program, payment history and circumstances. The exact effect depends on your credit history, your lender, and your loan type.
Side by side
Who controls the sale — Short sale: You, with lender approval — Foreclosure: The lender, through the court
Credit report — Short sale: Often reported as settled for less than the full balance — Foreclosure: Reported as a foreclosure, which can stay up to seven years
Getting another mortgage later — Short sale: Waiting periods are often shorter — Foreclosure: Waiting periods are often longer
Deficiency risk — Short sale: Can be waived in writing — Foreclosure: The lender may pursue a deficiency
Cost to you — Short sale: Usually no out-of-pocket cost — Foreclosure: Legal fees, interest, and possible deficiency
Privacy and timing — Short sale: A private sale on a timeline you influence — Foreclosure: A public court record and an auction
Waiting periods vary
Waiting periods for a new mortgage differ by loan type, such as conventional, FHA, and VA. They also depend on how the sale is classified and on your payment history before it. Ask a lender what applies to you.
Other effects to know
Missed payments hurt your credit before either one happens. Acting earlier limits the damage.
Taxes. Forgiven mortgage debt can sometimes be taxable income. Whether an exclusion applies depends on current law and your situation. Ask a CPA.
Housing. A foreclosure is a public record that landlords may see.
How to decide
If you can sell for enough to pay off the loan, selling normally is best. If you owe more than the house is worth and cannot keep up, a short sale usually beats a foreclosure.
What to do this week
Pull a copy of your credit reports, your payoff, and any notices. Send me the address, and I will walk through which path fits.
General education, not legal, tax or investment advice. Discuss your circumstances with a licensed Florida attorney or tax professional. Yoganand Ganeshram PA, licensed Florida real estate agent with eXp Realty. Equal Housing Opportunity.
Credit reporting matters: a short sale with a reported deficiency may affect scores similarly to foreclosure; one without that balance may have a smaller effect. Neither outcome guarantees a particular score or recovery time. Source: Experian: short sales and credit.
Originally published on Equity Edge Orlando. Reviewed for this Substack edition.