How to Save Your Credit When Going Through a Short Sale
Is a short sale better for your credit than a foreclosure? A foreclosure can drop your credit score by 250 points, but a successful short sale can leave you with only a discharged debt. A discharge is still negative, but not nearly as bad as a foreclosure. How can you save your credit when going through a short sale? Each lender has its own short-sale application process, and acceptance is not guaranteed. It's most effective to work with an experienced real-estate specialist to negotiate the best deal and to prevent damage to your credit report.
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Instructions
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Contact your lender. It's important to call and talk to someone at your mortgage company before your home goes into foreclosure. According to CBS News, some mortgage companies have foreclosure prevention departments to work out payment agreements. They can also explain the lender's short-sale application process.
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Find a qualified real-estate professional. Look for a Realtor who has successfully negotiated short sales in the past. There's a lot of paperwork involved in short sales, and mortgage debts are discharged differently in each state. Short-sale negotiations can take months to complete. To minimize the effect on your credit report, find someone with experience to negotiate for you.
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Get legal and tax advice. A real estate professional will help you negotiate the terms of a short sale, but check with a real estate or tax attorney to make sure you won't be left with future tax bills or mortgage debts after the short sale is approved. Some states may tax you or require you to pay back discharged debt. These future debts, if not paid, will negatively effect your credit score.
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Tips & Warnings
Find a buyer that will pay fair market price for the property to increase your chance of a successful short sale.
A successful short sale should only reduce your credit score by 100 points; you can be eligible for a new mortgage in less than two years.
Not all homeowners qualify for a short sale. Borrowers must be facing foreclosure. They must also show that a short sale will be more profitable than foreclosure proceedings.
Some lenders will ask you to pay back their losses from a short sale. Don't agree to terms you can't fulfill. Even if you save credit rating points with the short sale, you could end up with worse credit by defaulting on promissory notes or future debts.
