Short Sale Vs. Foreclosure on a Credit Report

What's the difference between a short sale and a foreclosure on a credit report? It could be 150 points or more. If negotiated well, short sales can be a win-win for homeowners and lenders. The lender avoids costly foreclosure proceedings, and the homeowner salvages their credit.

Expert Insight

According to Ray Martin, financial advisor on "The Early Show" on CBS, a short sale reduces the seller's credit score by about 100 points, while a foreclosure reduces it by about 250.

Significance

On credit reports, foreclosures appear as "debt discharged due to foreclosure" while short sales appear only as "discharged."

Time Frame

Short sale sellers can usually qualify for a new home loan in a year and a half. Foreclosure proceedings generally prevent mortgage loan approval for three years.

Considerations

Short sales require extensive negotiations. An experienced real estate professional is usually the best person to negotiate on behalf of a homeowner.

Warning

Not all homeowners are approved for short sales. The short sale has to net more money than a foreclosure for a bank to approve it.

References

• CBS News, The Early Show: "Dual Upside to Foreclosure Alternative;" Brian Dakss; June 2007

Resources

• National Association of Realtors: Field Guide to Short Sales