Is a Short Sale a Good Alternative to Foreclosure?

A foreclosure stays on a credit report for as long as 10 years.

Short Sales Do Less Credit Damage

A short sale is when a homeowner sells a home for less than what he owes on it and the lender forgives the remainder of the debt. A short sale can cost the homeowner as little as 50 credit score points if all his other bills are paid on time, while a foreclosure can cost between 250 to 300 points.

A Short Sale Takes Less Time to Recover

According to the Distressed Property Institute, a homeowner who forecloses can expect her credit score to be affected for at least three years. A short sale will affect the credit score for between 12 and 18 months. In addition, a successful short sale allows the buyer to purchase another home in as little as two years.

Bottom Line

A short sale is an attractive option to a struggling homeowner because it takes less time for your credit to recover from a short sale. The overall damage to the credit score is significantly less, and most importantly, a short sale is not reported on a credit history as anything other than a settled debt.

References

• Distressed Property Institute: Foreclosure vs. Short Sale--Homeowner Consequences